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China’s Market Meltdown Has Traders Rushing to Buy Protection

  • Stocks including Hong Kong have lost $4.5 trillion since peak
  • Cost of hedging Chinese shares is at record versus S&P 500
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WATCH: UBS’s Hartmut Issel discusses the outlook for Chinese stocks.Source: Bloomberg

Investors in Chinese financial markets are paying up for protection across all asset classes, discounting better-than-expected economic data and Beijing’s assurance it wants to avoid being sanctioned over its alliance with Russia.

Hedging a gauge of Chinese shares is the priciest in at least a decade relative to U.S. equities. Credit-default swaps insuring China’s five-year government bonds are the highest in two years. The options skew in the currency market is at levels last seen in late 2020, reflecting bets the yuan will weaken against the dollar. Outflows from the nation’s sovereign debt show even assets perceived as havens are turning risky.