Cleared derivatives are increasingly popular in Asia. Markets in India, China and other parts of the region largely drove the 64% global growth in futures and options exchange-traded volume to 137.3 billion contracts in 2023.
Asia’s rise in global derivatives markets coincides with its growing influence in the world economy. Contributing an estimated 50% to global GDP in 2023, the region is becoming increasingly central to the global economy and to investor portfolios. Rightly, investors see in Asia opportunities to capture, as well as risks to manage.
The principal growth story in Asia – and the world – is China, as it contributed an estimated 25% to the growth seen in the world economy in 2023. Though the country’s headline growth has slowed slightly, opportunities remain compelling in areas like electric vehicles, tech and advanced manufacturing.
For investors looking for exposure to the China growth story and its fast-emerging sectors and companies, Hong Kong’s unique Connect programmes and innovative markets are the bridge, the super-connector, connecting China and the world. Since launching ten years ago, the Connect programmes have grown in size and scope, and as the Connect programmes have developed, Hong Kong has also emerged as Asia’s risk management hub, offering a wide range of products for accessing opportunities and hedging risks.
In 2023, the average daily trading volume (ADV) of equity derivatives in Hong Kong reached a new annual record of 1.3 million contracts, up 2.5% from 2022. That momentum continued into 2024, with HKEX reporting a 5.9% increase in the total volume of futures and options contracts traded in 1Q 2024, and a 3.4% increase in ADV to 1.46 million contracts per day in March 2024.
Futures and options trading at HKEX set a record on January 25, 2024, with more than 3.1 million contracts traded.
China is a core part of the key element of the derivatives offering at HKEX and, since 2008, the average number of contracts traded per day on China underlying has grown from around 200,000 to more than 700,000 as of the end of 2023, according to HKEX data.
Investor interest in managing risk around China’s technology sector is one of the key drivers of turnover for HKEX’s derivatives offering. Trading volume of tech-based index futures tracking some of China’s most influential and successful technology companies grew 44% y-o-y in 2023 and total volumes in 1Q 2024 were up 24.2% y-o-y.
Exposure to China more generally is also growing, with YTD volume for a flagship futures contract offering broad-based exposure to China’s new economy increasing 96.0% y-o-y to 1.2 million contracts in total as of March 2024, and ADV in 1Q 2024 growing to 18,600 contracts, up 69% compared with ADV of 11,000 contracts in 2023.
With its status as an international financial centre and its role as a super connector between China and the world, Hong Kong remains the most competitive gateway for sophisticated investors who are looking for sector-balanced exposure to China’s resilient growth.
But the derivatives offering in Hong Kong is more than just China.
There is an extensive product suite of futures offering a diverse range of exposures in both emerging and developed markets, including India, Indonesia, Vietnam, Latin America and Europe, that amount to the broadest suite of derivatives products in Asia, offering many different product types to cater to different trading needs. In March, HKEX reported record high open interest for index futures tracking India and Indonesia markets respectively.
Beyond product offerings, Hong Kong’s derivatives markets have seen wide-ranging structural reforms to meet investors’ needs, including holiday trading, block trading enhancements, and revised position limit models for stock and future options, to increase the liquidity and vibrancy of Hong Kong’s derivatives markets.
Overall, Hong Kong’s markets, with their modernised infrastructure, growing product ecosystem and structural reforms, are setting the standard for Asia. And, as the world economy’s axis tilts towards the region and portfolios follow, Hong Kong is increasingly well positioned to serve as the go-to risk management hub in the region for international investors.
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