Asia Pacific Event Coverage

Trading Opportunities In China’s Tech Stock And Index Options – Notes And Replay

Jul 8, 2021

By Georgia Reynolds,
deputy editor

A surge in listings of Chinese tech firms is giving a new impetus to the growth of Hong Kong’s derivatives market, according to the panelists at EQDerivatives’ latest virtual forum in partnership with HKEX. IMC’s Andries Blom, HKEX’s Chris Lee, and Jefferies’ Conor O’Mara explored new opportunities brought about by the growing popularity of Chinese tech stock options in a conversation led by Will Mitting, founder and managing director at Acuiti.

The event replay is available below the summarized notes. For more details the time code is included to easily access each point in the video.

[4:00] Blom said the listing of tech stocks in Hong Kong has had a “huge” impact on the trading environment in the Asia Pacific region. Trading volume throughout the tech sector is large both in stock and options which drives attractive opportunities for both investors and traders alike, he said. The price movement in both the underlying and the vol-of-vol is quite high for these stocks, which is good for traders.

[7:10] O’Mara said the tech index in Hong Kong was around 11% of the index a year and a half ago. Today it’s 35% of the index, he said. O’Mara called this a fundamental restructuring of the entire market that will change the listings, growth, and the volatility. It will also change future IPOs, he added.

[8:30] The major southbound tech names O’Mara said are Tencent, Meituan and Xiaomi. But there are around 28 other tech names that are currently eligible that dominate southbound flows, he said. At [17:05] O’Mara said everyone is waiting to see when companies like Baidu and Alibaba will be eligible under Stock Connect. When that happens, there is going to be “huge” flows, he said.

[10:00] Looking specifically at the southbound flow Lee said HKEX is trading around HKD40 billion per day. This is an increase from about 8% of daily turnover to about 12.5% in the last year.

[12:30] The market has become a lot more interesting because of the tech listings, Blom said, adding that HKEX has attracted those listings and made them possible to use. IMC’s flagship indices used to consist of large banks, insurers, and other mainstream companies, but the inclusion of tech stocks has made it more diversified, Blom said.

[14:55] Lee called HKEX’s Hang Seng tech futures one of the most successful new listings in the last decade of futures. Launched in November, open interest is sitting at around 25,000 lots and HKD9.8 billion in notional. Since then, the exchange has launched options on that, too, which makes things like dispersion trading possible.

[19:40] Over the last five years Lee said there has been a large spike in proprietary and algorithmic traders which has been healthy for spreads and liquidity provision into HKEX’s products. More recently, he has seen a “helpful drive” from the retail sector. As a result, Lee said HKEX officials will likely soon be in discussions about launching minis and then maybe even options on the minis, too.

[28:00] Blom said the tech index trades around seven to eight vol points higher than flagship indices like the Hang Seng. The Hang Seng tech index is a good place for vol trades, but also liquidity on the individual stocks is “very good” if one wanted to buy a significant amount of volatility in those big tech names.

[37:00] A lot of Chinese tech companies cannot receive U.S. components anymore, so China must build its own tech industry, O’Mara said. “You name it, and China is working on it. So that’s a big investment theme.”