China Selloff Threatens $27 Billion of ‘Snowball’ Derivatives
- Structured products tied to China indexes at risk of losses
- Hitting knock-in level may trigger selling of index futures
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Another 10% decline in a major Chinese equity gauge may trigger a wave of selling in index futures tied to structured products, adding fresh risks to the slumping stock market.
Investors face losses in complex “snowball” derivatives at maturity when a benchmark falls below a so-called knock-in level. For those tied to the CSI Smallcap 500 Index, the average threshold is 4,865, according to estimates by China International Capital Corp. The gauge traded at around 5,417 as of 9:52 a.m. Friday.