Equity derivatives traders in Hong Kong and Japan are prepping index arb trades to take advantage of a rebalancing of the Hang Seng Index, which is set to occur June 1. While some of the trades are filtering through the over-the-counter market, most of action has been in exchange-traded instruments, such as warrants.
In typical transactions, traders have been taking long positions in China Unicom and MTR, which will be added to the index, and shorting SmarTone and First Pacific, which will be removed. Another trader noted that the Hong Kong Tracker Fund will have to enter these positions. "It's an obvious trade," noted one equity derivatives trader.