An innovative “synthetic” Long/Short product for HK retail investors

Given the reality that small (defined as whose liquid assets are less than US$1mm) retail investors in Hong Kong can’t short stocks, which might or might not change in the foreseeable future, G2 believes there is a synthetic approach to resolving this problem. In a nutshell, a retail investor can open a long-only account that invests in HK and other regional markets and also open a long/short marginal account that invests in the US market (eTrade and some other online brokers offer such services). As long as HK dollar remains pegged to US dollar and US economy remains the most influential one in the world, the correlation between US equities and HK equities should stay high, making this “synthetic” long/short strategy workable. The benefits of such a strategy include:

 

 

1) addressing the need for retail investors who meet the minimum net worth requirement but neverless require better transparency and ultimate control of trading decisions (particularly in Asia)

2) bridging the gap btw. Separate Account Mgmt and Hedge Fund model as average HNW investors have increasingly become accustomed to hedge funds

3) an investor advisor could easily adopt this strategy by providing a “model portfolio” on real time basis for its retail clients. Maybe not “2+20” but advisors should be able to sell such products at a higher rate than its plain villa long-only mutual fund products.

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