HKEX was regarded as the world’s largest bourse by market capitalisation or the fastest growing stock exchange in Asia. With its growth, the HKEX also serves as a major gateway for foreign investment into mainland China. Through the HKEX, international investors can gain access to Chinese companies, which are listed in Hong Kong, and invest in them through instruments such as exchange-traded funds (ETFs), mutual funds, and other investment vehicles.
Given the exchange’s presence, it has become a fundamental financial derivatives provider not only in the country but also plays an important role in Asia. Hence, this article will cover the key benefits and products offered by the exchange.
5 Things To Know About Hong Kong Exchange
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History of HKFE
Hong Kong Futures Exchange or Hong Kong Exchange & Clearing Limited (HKEX) was established in 1861, in its early days, the exchange was named as the Association of Stockbrokers. Subsequently, the exchange continued to draw attention and launched one of the flagship products, the Hang Seng Index, which tracks the performance of the largest companies listed on the exchange.
As part of the clearing process, OTC Clearing Hong Kong was incorporated as a subsidiary of HKEX in 2012, in the next year, OTC Clear created OCASS, an OTC Clearing and settlement system for OTC Derivatives clearing and became a central counterparty for all clearing members.
By 2020, HKEX was regarded as the world’s largest bourse by market capitalisation or the fastest growing stock exchange in Asia. With the exchange playing an important role in Asia, this article will cover the key benefits and products offered by the exchange.
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HKFE Futures Products
The HKFE offers a variety of financial products, and it is known for its strong focus in several segments such as equities, fixed income, and derivatives (commodity futures).
Some of the products include, CSI Liquor Index ETF, MSCI Index, Inflation-linked Retail Bond, or USD Gold futures, One-Month HIBOR Futures and Stock Futures. For metal futures, the Hong Kong Exchange has also maintained connections with its branches such as LME and QME to provide market data and the latest updates.
What To Look Out For
NIO on Hong Kong exchange is one of the stocks to look out for. The Hong Kong exchange Nio is a Chinese manufacturer for electric vehicles. The firm had been listed in Hong Kong by way of introduction, this means that Nio’s shares could be traded less than two weeks after it was announced to list in Hong Kong. Based on Law.asia, NIO had also “applied for a secondary listing by way of introduction on the main board of the SGX-ST”. The company was later listed on SGX on 20th May 2022. With the launch of companies such as NIO, increased attention will be placed on the electric vehicles industry and carbon related derivatives as well.
SGX has also recently launched an energy metal/battery metal derivatives contract, mainly consisting of Lithium and Cobalt metals in support of the global movement to reach global environmental goals.
Apart from stocks, in the futures and derivatives front, traders from Mainland China or Hong Kong are also able to use the connect schemes, which mainly refers to the stock connect/bond connect.
Stock Connect and Bond Connect
Stock connect is a mutual market access programme through which investors from Mainland China and Hong Kong can settle shares from clearing houses in their home market. Similarly, Bond capital is a joint venture between CFETS and HKEX which allows investors from Mainland China and overseas to trade in each other’s bond markets.
To maximise the effectiveness of the connect scheme for both mainland Chinese and Hong Kongers, ETFS were added to the list of products in Swap Connect and Stock Connect in July 2022 and the scheme was further enhanced on August.
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HKFE Data
From the 2022 Hong Kong stock market report, the market was under pressure since the beginning of 2022 as sentiment was hurt by combined effect of geopolitical tensions in Eastern Europe, aggressive rate hikes by the US Fed driven by elevated inflation, widening COVID outbreak and pandemic control as well as property market weakness in mainland China.
Following the stock market report, The Hong Kong Exchange has released a media briefing for the year of 2022 reflecting similar sentiments as well as the exchange held “solid FY demonstrating resilience and diversification despite challenging macroeconomic and geopolitical backdrop”.
The exchange has also recorded that the connect programmes continued to perform well. Stock connect saw a revenue of HK2.3b and accounted for 12% of the group’s total revenue though it was down 17% YoY. On the other hand, Bond connect Northbound ADT saw a record high of RMB 32.2B. which was up 21% YoY.
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Regulatory Environment in Hong Kong
Hong Kong has maintained a well-developed regulatory framework which is overseen by the securities and futures commission (SFC).
These rules are maintained by the Hong Kong Futures Exchange, which is responsible for regulating the trading of futures contracts and the Hong Kong Exchanges and Clearing Limited (HKEx), which is responsible for regulating the trading of securities and derivatives on its exchange. Additionally, the internal rulebook for the main board listing rules can be found here.
While Hong Kong maintains its regulatory and clearing procedures, the exchange also actively seeks collaborations to strengthen its processes.
On Feb 6, 2023, the exchange had signed an MoU with The Saudi Tadawul Group, which operates the stock exchange in Saudi Arabia. The agreement intends to connect the east and the west, and in the report by thetradenews, this MoU will be vital to “exchange information, and align on best practice to elevate our (Saudi Arabia’s) capital markets and enhance the experience for issuers and investors alike.”
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Alternative for Metal Commodity Products
Apart from its indexes, the London Metal Exchange is responsible for a large proportion of metals trading, and it was previously acquired by HKEX in 2012. Given that it is the world’s largest metals trading exchange, traders can find a variety of metals that are both ferrous and non-ferrous.
The LME metals market is particularly important as it also serves as a price reference for other metal markets including China’s metal and ore market or SGX ferrous metals.
Through these markets, traders may even choose to cross-arbitrage by identifying price differences between similar metals contracts traded on both exchanges. Cross arbitrage will involve simultaneously buying and selling the same product from 2 different exchanges.
However, it will be important to note that time zone differences, settlement methods or volatility may also be factors to look out for.
For example, in the LME Nickel Market Update provided on 23 February 2023, the market will be returning to the 01.00 London time start, which is the Asian hours for trading. This timing is expected to provide better opportunities for Members and Clients alike.
Start Trading With Orient Futures Singapore
Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG).
We provide premium customer service at an affordable cost to all our clients. Our team will be there for you 24 hours on trading days to provide a one-stop portal for all your trades, with simple processes and an intuitive user interface that has low or near-to-zero latency.
