On October 18, Hong Kong Exchanges and Clearing launched MSCI China A50 Interconnection (US Dollar) Index Futures (hereinafter referred to as HKEx A50 futures) for open trading.

What is HKEx A50 futures and what is its significance to Hong Kong stocks and A-share markets? This article will answer one by one.

New MSCI China A50 Interconnection Index Futures contract

The HKEx announced the launch of the new MSCI China A50 Interconnection Index futures contract on Aug. 20, saying it was a key step in introducing the offshore mainland equity derivatives portfolio.

The chief executive of HKEx, Mr ou Guansheng, said:

The announcement of A-share index futures marks a key step in promoting the establishment of an offshore series of mainland Chinese equity derivatives in Hong Kong.

We also have a closer long-term partnership with MSCI to develop Hong Kong into a leading derivatives trading centre in Asia and enhance the depth and breadth of investment products in the Hong Kong market.

As the leading market in the Asian time zone, we shoulder the important task of connecting China to the world, and this new product will provide investors with an effective tool to manage the risks of A-share-related assets.

HKEx A50 futures is the first index futures in Hong Kong to track the A-share market and the first overseas A-share derivative based on the interconnection mechanism.

According to market analysts, the launch of HKEx A50 futures provides international investors with a low-cost and convenient tool to manage the investment risk of A-shares and attracts more international investors to invest in mainland Chinese stocks.

At the same time, for the Hong Kong market, the launch of the product will expand the offshore RMB capital pool and related investment products in Hong Kong, consolidating Hong Kong's important position in the international market as a financial risk management and access to the Chinese market center.

What are the advantages of a linked index?

The index linked to HKEx A50 futures is the MSCI China A50 Interconnection Index, which covers 50 of the mainland A-share large-cap stocks. The index includes 50 stocks eligible for trading on the Shanghai-Shenzhen-Hong Kong Stock Connect and is highly related to the historical performance of the main MSCI A-share index.

According to the official website of MSCI, the MSCI China A50 Interconnection Index adopts an innovative approach, selecting 50 stocks from the largest market capitalization that meet the interconnection conditions to ensure a decentralized sector allocation and a balanced representation of a wide range of Chinese A-share markets.

The top ten weights are Ningde era, Guizhou Moutai, Longji shares, Wanhua Chemical, China Merchants Bank, Lixun Precision, Wuliangye, BYD, BOE and China China exemption. The specific weights are shown in the following figure:

According to analysts, the MSCI China A50 interconnection index is more evenly distributed than SGX's FTSE A50 index, with both healthcare and TMT sectors weighted much higher than SGX's FTSE A50.

Summary of HKEx A50 Futures contract

According to the official website of the HKEx, the HKATS code of HKEx A50 futures is "MCA". It trades in micro-US dollars, with a contract multiplier of US $25 and a minimum price volatility of 0.2 index points. Details and transaction details can be found atView this page.