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North Asia takes to short and leveraged ETFs


Analytics firm Cerulli Associates reports that leveraged and inverse – or short – ETFs are gaining traction in North Asia. Reporting from Singapore, the firm finds that while leveraged and inverse ETFs have long been popular in Japan and Korea and, more recently, in Taiwan, Hong Kong is the latest market to join these North Asian countries in offering leveraged and inverse ETFs.

 Inverse ETFs are designed to profit from the decline of an underlying benchmark or index.
According to a report by the Taiwan Stock Exchange, the daily average trading volume of ETFs in Taiwan rose by 45 per cent in 2015 to 299.5 million units due to the introduction of leveraged and inverse ETFs. Cerulli expects that Hong Kong will likely experience a similar surge in trading activity in 2016 as these products go to market later in the year.
The firm writes that excitement has been brewing in the space after Hong Kong authorities signalled that they were looking to expand the ETF product base in a report published by the Financial Services Development Council in October last year.
Some foreign asset managers, such as Samsung Asset Management and Mirae Asset Management, have expressed their interest in bringing over their expertise in inverse and leveraged ETFs from their home market in Korea to Hong Kong. There is also a talent hunt for ETF specialists in Hong Kong which is likely to intensify, especially if leveraged and inverse ETFs take off there.
However, Cerulli expects Hong Kong to continue to be behind the curve in developments in the ETF space compared to Taiwan. With a head start to leveraged and inverse ETFs over Hong Kong, Cerulli believes that Taiwan will continue to set the pace between the two jurisdictions for future developments in the space.

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