HONG KONG: Hong Kong’s exchange is launching derivatives with index provider MSCI in a deal that hurts rival Singapore and boosts its global appeal amid US warnings that Chinese pressure on the city’s autonomy threatens its future as a financial hub.
The announcement comes days after China’s National People’s Congress said it would impose new national security legislation on Hong Kong, which US government officials have warned could bring into question the city’s special economic status under US law.
On Tuesday, White House spokeswoman Kayleigh McEnany said President Donald Trump had told her “it’s hard to see how Hong Kong can remain a financial hub if China takes over.”
Hong Kong Exchanges and Clearing said on Wednesday it will launch Asia and emerging markets futures and options contracts under a license deal with MSCI Inc.
That will end a current arrangement where the contracts trade in Singapore, pushing Singapore Exchange shares 11.6 percent lower in their biggest daily drop in more than 16 years. HKEX shares rose 0.15 percent.
The broader market dipped.
“What we saw in Hong Kong exchanges was a larger customer base, particularly the access to Chinese institutional and retail investors, said Henry Fernandez, Chairman and CEO at MSCI.
“We also saw the ability to have a large market for index options and that market is the gateway to structured products.”
SGX said in a separate statement that it would not renew its licensing agreement with MSCI when it expires in February 2021, other than for the MSCI Singapore index.
The Singapore bourse said loss of the contracts could hit its 12-month net profit by up to 15 percent.
Fund managers at Aberdeen Standard investments, which holds shares in both bourses, said the move is also a blow to Singapore’s position as a one-stop shop for derivatives trade, while a positive for Hong Kong’s prospects.
“The potential boost to derivative trading volumes would not only increase HKEX’s revenues but also help it diversify away from its main cash equities business,” said Elizabeth Kwik, Asian equities investment manager at Aberdeen.
HKEX CEO Charles Li said that international and Asia-focused products were a “missing part of the puzzle” for HKEX, as investors typically came to the bourse to trade HK and mainland China linked products.
Li denied that there was any political aspect to the announcement.
“This is a commercial arrangement that has its own timing and its own processes. We are not coinciding with anything. Politics comes and politics goes,” he said.