Investors in Hong Kong have bet a record amount on exchange-traded funds that profit when stocks decline, showing how quickly sentiment is shifting following a breakneck rally.
Institutional and retail investors last week poured around $290 million on a net basis into inverse ETFs tracking Hong Kong stocks, a record weekly inflow, according to data compiled by Bloomberg Intelligence. Investors also pulled $1 billion from ETFs that profit when Hong Kong stocks rise, the biggest weekly outflow since January 2015.
The rush to bet on inverse ETFs in Hong Kong underscores the rapid shifts in market sentiment that have followed a stimulus blitz by Chinese officials in late September. Hong Kong’s Hang Seng Index surged in the wake of the stimulus announcements, pushing turnover in the city’s stock market to a record and fueling talk of a ‘once in a century’ buying frenzy. But the index plunged 9.4% on Tuesday, its worst day since 2008, and has been volatile throughout this week.
“Investors typically use inverse ETFs to express a bearish view on the market and flows could continue to rise amidst the volatile market conditions,” said Rebecca Sin, a Bloomberg Intelligence analyst.
HK’s Inverse ETFs to Attract Flows Amid China Market Volatility
Questions around China’s stimulus plans are a major driver of volatility, with Tuesday’s decline coming after a closely watched government meeting passed without a big announcement. Investors are now turning their attention to a Saturday briefing by China’s finance ministry, with hopes that more concrete stimulus plans could boost stocks next week.
Among the inverse products popular among investors, a CSOP-managed ETF that profits from the decline of Chinese technology stocks attracted a record HK$1.5 billion ($193 million) on a net basis last week.
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