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 overseas 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.

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.

• 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: Due to its leverage or inverse exposure and non-diversified nature, 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.
• High cost of portfolio construction: Single Stock L&I Products typically adopt a primarily swap-based replication strategy to achieve their investment objective. Due to market conditions, market sentiment towards the underlying stock, as well as changes in interest rates, the swap fees associated with Single Stock L&I Products can be higher than those L&I Products tracking broad-based equity indices or commodity indices, potentially leading to an adverse impact on the performance and higher tracking difference. Single Stock L&I Products may also use options as an additional means to obtain exposure to the underlying stock, which can lead to higher portfolio construction cost. In extreme market conditions, the cost of portfolio construction may increase significantly which could adversely affect the product’s Net Asset Value (NAV) and tracking difference. Payment incurred for holding derivatives (e.g. swap fees and cost from options) are not included in the ongoing charges of the products.
• Capacity limit: This represents the maximum amount of swap or option transactions a counterparty has committed to provide the Single Stock L&I Products with their required exposure to the underlying stock. In periods of market volatility or when the product’s NAV grows rapidly, these limits may be reached. If this happens, new units may not be created and the investment exposure to the underlying stock may deviate from the target exposure, which may (i) cause the product to trade at a higher premium or discount to its NAV on the SEHK; and (ii) increase tracking difference.
• 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. Such deviations may widen significantly during volatile market conditions or if the trading of the underlying stock is suspended.