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The first batch of leveraged and inverse ETFs, issued by Samsung Asset Management (Hong Kong) Ltd, was introduced to Hong Kong. The products would suit retail investors seeking short-term investments rather than asset allocation with a long-term view, as well as institutional investors wanting to conduct hedging, experts say. Cho Seong-Joon / Bloomberg

South Korean conglomerate's leveraged ETF products to focus on short-term investors

Hong Kong investors have been offered a new investment tool in the form of exchange-traded funds (ETFs), which are set to gain a foothold in financial markets as investors seek out short-term investments.

Samsung Asset Management (Hong Kong) Ltd - an affiliate of South Korean multinational conglomerate Samsung Group - announced on Monday the listing of four leveraged and inverse ETFs on the Hong Kong Stock Exchange.

It's the first time leveraged and inverse ETF products have been launched in the city's financial market.

By matching each dollar invested with additional debt, leveraged ETFs can theoretically amplify gains in the market, excluding management fees and transaction costs, while inverse ETFs enable investors to benefit from declines in an underlying index.

The four ETF products - with one pair tracking KOSPI 200 in South Korea and the other tracking TOPIX in Japan - started trading on the main board on Monday with an annual fee of 0.99 percent.

The products would suit retail investors seeking short-term investments rather than asset allocation with a long-term view, as well as institutional investors wanting to conduct hedging, according to Joe Yip Tze-kin, associate director of marketing at Samsung's ETF and index investment division.

He said the investment risk of such products is lower than that of other derivative instruments, but the reiterative volatility may influence investors' accumulated returns.

Although the global economic environment is weak, Yip believes that the new products will offer investors a variety of choices, and may be adjusted later, based on investor sentiment and the market environment.

Sam Chi Yung, senior strategist at South China Financial Holdings, said investors may have strong demand for leveraged and inverse investment instruments, but he is worried that, in the early stages, there may be liquidity risks as investors are still unfamiliar with the products and the underlying non-Hong Kong and non-mainland equity indexes.

The world's first batch of leveraged and inverse ETFs was launched in 2006 in the US, with Samsung introducing its first such products in South Korea in 2009. According to Yip, the trading volume of Samsung's leveraged and inverse ETF products accounted for 30 percent of the market share in South Korea as of September last year.

The Hong Kong launch came after local securities regulator - the Securities and Futures Commission (SFC) - opened the door to leveraged and inverse ETF products in February this year.

The securities watchdog, for now, only accepts applications for leveraged and inverse products tracking broadly-based non-Hong Kong and non-mainland foreign equity indexes in the initial stage. The underlying indexes will be extended to broadly-based Hong Kong equity indexes in the second phase. Samsung is participating in both.

Yung said the SFC may be trying to avoid unexpected market chaos by introducing the products in two phases, and allowing investors adequate time to digest them.

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(HK Edition 06/14/2016 page9)