Asian markets overnight could be full of volatility as default in the credit market of the building developer in China, would likely have spillover effects on other markets in the region.
Index options on South Korea’s Kospi 200 are among the world’s most actively traded. Average daily notional turnover in Kospi 200 options hit almost USD280 billion per day in the first two months of 2021, more than nine times the daily options turnover of Japan’s Nikkei 225. Such impressive volumes are thanks in part to a long-standing and potent combination of domestic retail and institutional appetite for leverage, as well as outsized returns accessed either directly via index options or indirectly via warrants, autocallables and other structured products.
Participation in derivatives markets has also been supported by the underlying index’s relative strength among the Asia Pacific broad-based market indices.
Leverage in derivatives tradings and structured products in Asian markets could see higher volatility, credit markets contagion, corporate bonds yields and high yield corporate debt would see a spike in yields, with investors dumping corporate bonds, meanwhile Asian stocks and index could sell-off in Q4.