SINGAPORE - The launch of leveraged and inverse exchange traded funds (ETFs) in Hong Kong early this year was met with strong investor interest, but what has increasingly caught investors' imagination is the prospect of leveraged products linked to mainland China indices.

“The prospect of leveraged and inverse products linked to mainland China indices is an exciting one,” Stewart Aldcroft tells participants of The Asset 2^nd ETF Asia Summit today in Conrad Centennial Singapore.

“Market has moved way ahead of regulators in terms of ETFs, particularly so in Asia,” says Aldcroft even as Hong Kong and Singapore have recently just come around to allowing the derivative-linked ETFs.

Hong Kong’s Securities and Futures Commission opened the local market just this year to the launch of leveraged and inverse ETFs. Leveraged and inverse ETFs use derivatives to profit from the movement in indices they track.

In other developed markets in Asia as in Japan and South Korea, those inverse and leveraged products have been permitted for more than a decade. In Taiwan, they were introduced two years ago. The launch of the derivative-linked products in Hong Kong is raising hopes for the development of similar products linked to indices in the mainland.

“People underestimate that in Asia, a vast majority of sales in Hong Kong and Singapore go to institutional investors, insurance, hedge funds,” he notes.

There is reason to be hopeful that leveraged and inverse ETFs will thrive in the Greater China region.  In Korea, leveraged and inverse ETFs now make up 50% of turnover. Northeast Asia has the lion’s share of the total asset under management and turnover of ETFs, says David Quah, head of ETF, Hong Kong Mirae Asset Management.