Chinese Stocks Face Derivatives-Driven Trigger Of Doom

Friday, January 22, 2016
By Paul Martin

by Tyler Durden
ZeroHedge.com
01/21/2016

Despite the collapse in Chinese stocks, Bloomberg reports annual sales of Chinese equity-linked structured notes across AsiaPac rose to a record (prompting Korea’s financial regulator to warn investors in August that their holdings had become too concentrated in notes tied to the China H-Shares index). When banks sell the structured products to investors, they take on an exposure that’s similar to purchasing a put option on the index… which needs to be hedged via index futures; and if BofAML is right, >Chinese stocks in Hong Kong are poised for a fresh wave of selling now that HSCEI has crossed 8,000 as banks are forced to hedge.

The Rest…HERE

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