Leveraged and inverse products (L&I Products) are listed and traded on the HKEX. In response to market developments, the product mix has expanded recently, encompassing traditional ones referencing an equity or commodity index, as well as those referencing only one single stock.

L&I Products typically use swaps, options or futures contracts to achieve exposure to the underlying assets. Leveraged products aim to deliver a daily return equivalent to a multiple of the underlying asset return, with a maximum leverage factor of 2x. In contrast, inverse products aim to deliver a daily return equivalent to a multiple of the inverse underlying asset return, capped at a maximum leverage factor of -2x.

To produce the specified leveraged or inverse return, these products have to rebalance their portfolio, typically on a daily basis.

L&I Products are only suitable for sophisticated trading-oriented investors who understand the potential consequences and associated risks of seeking daily leveraged or inverse results, and constantly monitor the performance of their holdings on a daily basis.

Investors may refer to the L&I Products section of our website to understand more about this product.

Single Stock L&I Products are a sub-set of L&I Products referencing a highly liquid mega-cap stock listed on a major exchange.

In contrast to investing directly in the underlying stock, Single Stock L&I Products are derivatives products designed for short-term trading or hedging. They can also be instruments for price discovery of the relevant overseas stocks during Asian trading hours.

Just like other L&I Products, Single Stock L&I Products are “daily” products that are not intended for holding longer than one day. Given their complex structures and operations, these products are not suitable for investors with less experience, or those who follow a buy-and-hold investment strategy. If a Single Stock L&I Product is held beyond one day, its performance may deviate from, or may even underperform, the targeted leveraged or inverse performance of the underlying stock. The higher the volatility of the stock and the longer the holding period, the greater the deviation.

Before investing in Single Stock L&I Products, investors should read its offering documents carefully and fully understand its features, underlying stock, operation and risks. In particular, it is important to understand both the general risks of L&I products, and the specific risks to Single Stock L&I Products, which are listed below. Investors should also pay attention to the bid-ask spread and refer to the intraday indicative NAV (iNAV) published on the product’s website to assess whether the trading price is reasonable.

• Single stock concentration: These products are concentrated in a single underlying stock, exposing investors to the specific risks of that underlying stock, including those related to its industry. Therefore, investors should pay attention to the business activities and specific risks associated with the underlying stock.
• Extreme price volatility: Single Stock L&I Products’ exposure concentrates on a single stock, and leverage amplifies the products’ price volatilities, making them more volatile than the prices of the relevant underlying stock. Prices of Single Stock L&I Products may be extremely volatile and may become non-viable within a short period. Investors may lose a significant portion or all of their investment within one day. Investors should carefully consider whether they can tolerate substantial price fluctuations, particularly under extreme market conditions.
• High cost of portfolio construction: Single Stock L&I Products typically use swaps or options to achieve the targeted leveraged or inverse exposure to the underlying stock. Depending on factors such as growing product size, market volatility, market sentiment towards the underlying stock, and fluctuations in interest rates, the related costs of portfolio construction may increase significantly and can be much higher than those L&I Products tracking broad-based equity indices or commodity indices. This could adversely affect the product’s NAV and lead to material increase in tracking difference, for example resulting in the product’s daily return underperforming the targeted leveraged or inverse performance of the underlying stocks. Investors should also note that such costs are deducted daily from the product’s NAV and are not reflected in the ongoing charges figures disclosed in the products’ key fact statements.
• Capacity limit: This represents the maximum amount of swap or option notional a counterparty has committed to provide to the Single Stock L&I Products to support their targeted exposure to the underlying stock. In extreme market condition, or when the product’s NAV grows rapidly, existing swaps and options capacity may not be sufficient to support the product’s targeted leveraged or inverse return. If this happens, new units may not be created and the product may not be able to provide the target exposure to the underlying stock (i.e. underexposed), which may cause (i) the product to trade at a higher premium or discount to its NAV on the SEHK; and (ii) material increase in tracking difference. It may also trigger contingency measures such as deleveraging or suspending primary market creations.
• Trading time zones difference: As the trading of the Single Stock L&I Products and the underlying stocks are in different time zones, the products may trade at a substantial premium or discount to their NAV due to different market conditions such as volatility and demand and supply, particularly when the underlying stock market is closed but the product’s trading on exchange remains open. Such deviations may widen significantly during volatile market conditions or if the trading of the underlying stock is suspended.