Options traders bet on longer run for Hong Kong stock rally
Investors expect low valuations and the trading link with Shanghai will drive further gains
For Hong Kong options traders, the stock rally has room to run.
Puts with an exercise price 10 per cent below the benchmark Hang Seng Index cost 2.8 points more than calls betting on a 10 per cent increase, according to a compilation of three-month data.
The price relationship, known as skew, was 15 per cent below the average this year and fell to 0.2 point on July 30, the lowest since November 2012, the data showed.
The index jumped 6.8 per cent in July, the biggest monthly advance since September 2012 and the most among developed markets. It shed 0.26 per cent to 24,584.13 points yesterday.
Investors are betting that low valuations for the city's stocks and the proposed Shanghai-Hong Kong stock connect scheme that will allow cross-trading of shares in the two markets will drive further gains.
"There's more upside for Hong Kong shares as they're still trading at a discount to regional markets," said Pauline Dan, the Hong Kong-based head of Greater China equities at Pictet Asset Management.
"Hong Kong has been a laggard in the global market rally and it's starting to see fresh inflows. The proposed trading link with Shanghai solidifies Hong Kong's position as China's financial centre."
