Skip to content

China Stocks Face Big Risk as Thousands of Hedge Funds Near Point Where They Have to Dump Shares

  • Deepening portfolio losses trigger clauses mandating sales
  • Rules to protect investors can backfire in falling market
Updated on

China’s almost-trillion dollar hedge fund industry risks worsening the turmoil in its stock market as deepening portfolio losses trigger forced selling by some managers.

About 2,350 stock-related hedge funds last month dropped below a threshold that typically activates clauses requiring them to slash exposures, with many headed toward a level that mandates liquidation, according to an industry data provider. Such signs of stress were “close to the historical high,” China Merchants Securities Co. analysts said in a report this month.