Investec opens up China

Investors can now get access to the 25 biggest Chinese companies listed on the Hong Kong stock exchange through IDX futures. "I don't think there's any more cost-effective way to get access to China," says Adam Myers of Investec (JSE:INL).

However, there are a few points about IDX futures that investors need to note. Firstly it is a geared product. This means that the investor pays a fraction of the price of the underlying share/unit and the rest is borrowed from a bank, such as Investec.

Of course the borrowed component is not free; the bank charges investors interest.

Holders of futures are not entitled to dividends. Instead dividends are compensated for in the price paid for the product. For IDX futures the buying and selling price is normally determined by the market maker. In the case of the FTSE China 25 IDX future that is Investec.

Furthermore, investors will only be able to gain access to the IDX futures through a Safex accredited broker. The broker may require its own margin deposit on top of that required by the market maker. A rough estimate of margin requirements for the FTSE China 25 IDX future is 14% of the value of the underlying unit.

This means that to get access to the product an investor will need to give the broker approximately 14% of the value of the underlying unit of FTSE China 25.

The FTSE China 25 Index has its price set on the London Stock Exchange in British pounds. The index is administered by Barclay's iShares. The index has had a 46% run since January this year, moving from £48.99 to £71.46.

The top three weightings in the index are financials (51%), telecommunications (16%) and oil and gas (13%). Table 1 shows the top ten holdings and their weightings in the index.

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