China’s wild markets send Hong Kong derivatives to third record year

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Record-Breaking Trading in Hong Kong’s Derivatives Market

For the third year in a row, trading of derivatives in Hong Kong has hit a record. According to data from Hong Kong Exchanges and Clearing (HKEX), more than 377 million futures and options have changed hands on the city’s bourse since January, up 14% from 2023.

Economic Stimulus and Market Volatility

China’s pledge to revive its economy initially spurred a wave of euphoria among traders, but that quickly waned with the government’s slow pace of implementation. Equity gyrations jumped as trading of shares hit levels never seen before, increasing the need to hedge. Some investors used derivatives to bet on the market in a cautious way, according to Societe Generale’s Frank Benzimra.

Rise of Options Trading

"In that case, it’s very much on the options market that you can express some views," Benzimra said at a briefing on Thursday. China’s stimulus bazooka – which included interest-rate cuts, cash for banks and support for equities – made the once-beaten shares from Hong Kong and the mainland some of the world’s best for the year, before the easing of optimism triggered a rush to sell.

Boost in Daily Stock Turnover

Overall, daily stock turnover rose by more than one-fifth for Hong Kong and China from 2023, data compiled by Bloomberg show. This helped spur the local derivatives market. With a few days remaining to the end of the year, options volume in Hong Kong increased 15% from 2023 to 209 million contracts, while that of futures climbed 13% to 168 million, HKEX data show.

HKEX Efforts to Grow the Market

The bourse itself has boosted efforts to grow the market. It launched weekly options on the Hang Seng Tech Index in September and on 10 single stocks – including HSBC Holdings, Tencent Holdings and Alibaba Group Holding – in November. In their first month of trading, the weekly versions accounted for more than 10% of the total contracts volume for most of the companies.

Global Trends

In the US, where an average of 48 million options change hands each day on average, contracts volume reached 11.2 billion in 2024, a fifth year of records, Options Clearing data show. The introduction by Cboe Global Markets of weeklies in 2005 and of daily options in 2022 has helped boost trading, and contracts expiring in less than a week now account for more than half of the volume.

Conclusion

Hong Kong’s derivatives market has seen a record-breaking year, driven by the city’s economic stimulus and the rise of options trading. As the market continues to grow, the bourse is likely to see increased demand for shorter-dated options and further expansion of its product offerings.

FAQs

Q: What is driving the growth of Hong Kong’s derivatives market?
A: The city’s economic stimulus and the rise of options trading are key factors.

Q: What is the current state of the derivatives market in Hong Kong?
A: Trading of derivatives in Hong Kong has hit a record, with over 377 million futures and options changing hands since January.

Q: What is the outlook for the derivatives market in Hong Kong?
A: The bourse is likely to see increased demand for shorter-dated options and further expansion of its product offerings.

Angela Lee
Angela Lee
Director of Research

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