HONG KONG, Oct 18 (Reuters) - Hong Kong's new futures product based on an index of onshore Chinese shares, which began trading Monday, had the highest first-day trading value of any new futures launched on the Stock Exchange of Hong Kong, according to the bourse.

The data underscore the demand from investors in China for hedging tools during the current market volatility and also mark the start of a new front in the battle for derivatives dominance between exchange operator Hong Kong Exchanges and Clearing and Singapore Exchange, whose rival China derivatives product currently dominates the market.

HKEX's MSCI China A 50 Connect Index Futures, which track a new index of 50 A-shares - Chinese stocks traded onshore, saw 1,395 contracts traded on Monday with a notional value of $93.5 million, according to a company spokesperson.

This figure was the highest for the first day of any new futures contract traded on the exchange, he said.

International investors have been increasing their exposure to onshore-listed Chinese stocks in recent years, but often complain that they have limited access to derivatives products like futures to manage their risk.

This has become particularly relevant during recent months, as Chinese policymakers have launched a series of crackdowns on sectors from technology to property that have roiled Chinese stocks.

"With global investors' China exposure growing, changes in China's regulatory policies are having bigger and bigger impacts on their portfolios, so the demand to manage such risks more accurately is on the rise," said Wei Zhen, MSCI's head of Asia-Pacific Index Solutions Research, adding the new product would help investors hedge short-term regulatory risks.

In addition, China's securities regulator gave the green light on Monday to four Chinese mutual fund managers to launch exchange-traded funds based on the new A 50 Connect Index.

REGIONAL RIVALRY

However, SGX's rival long-standing FTSE China A50 futures had an average daily notional value of $7 billion in September, dwarfing Hong Kong's first day-volumes.

"It is still very early days, it generally takes time to develop liquidity for a new product, and even the rest of Hong Kong's MSCI derivatives contracts are still ramping up," said Michael Wu, an analyst at Morningstar.

The exchanges are increasingly competing for business as HKEX seeks to diversify its revenues from fees from cash equity trading into derivatives, SGX's traditional strength.

HKEX launched new derivatives' contracts with MSCI last year, after the index provider ended its long running partnership with SGX, but SGX held onto much of the trading volumes by launching equivalent products with FTSE, another index provider.

"In this first 'battle' SGX was able to defend its Asia derivatives market share," said analysts at Citi in a note.

As for the new China products, "the stakes are high for SGX given that China A50 drives over 40% of derivatives volumes. ... We fear over the next 6-12 months SGX derivative revenue could come under pressure if HKEX attempts to engage in a China A50 price war."

(Reporting by Alun John in Hong Kong and Samuel Shen in Shanghai, additional reporting by Anshuman Daga in Singapore; editing by Mark Heinrich & Shri Navaratnam)