Chinese retail investors who loaded up on derivatives that rely on calm market conditions have been hit with heavy losses, further undermining confidence in the country’s sputtering equity market.So-called snowballs, which promise a stream of sizeable interest payments as long as stock indices trade within a certain range, have grown to an estimated Rmb320bn ($45bn) market in China.
Brokerages and private wealth managers increased sales of such derivatives — named because of the steady returns they can accumulate for holders — in 2021, touting the higher yields on offer at a time when equity markets were relatively placid.
But a protracted stock rout since late 2023 has led to indices breaching a lower limit embedded in the contracts, triggering so-called knock-ins that leave many holders facing substantial losses on their original investment unless stocks rebound.