Alice in Wonderland economics

For the past three years Chinese investors have been putting money into snowball derivatives. These are quite complex and have an upper financial limit (knock out limit) and a lower financial limit (knock in limit). As the stock market slumps and the knock in price is reached the contract is terminated and a loss crystalized. Quite a weird investment that promised returns of over 15% - this should have flagged it up as high risk. There is now a danger of massive losses:

To help stabilise the stock market the Chinese government is going into the market to buy shares and force prices up:

From the article:

More than 30 Chinese-listed companies unveiled share buyback and purchase plans over the weekend while major mutual fund house E Fund Management said it would invest in its own product.

Invest in its own products – that sounds like a plan :grinning:


Compulsive gamblers need to lose.

How are Snowballs structurally different that “structured notes” that are available in the US?

I’ve never been a big fan of all these fancy derivatives. Too good to be true often is.


Apparently, they learned nothing from the GFC (or have forgotten it).

Derivatives of any asset based on an assumption that prices of the base asset only go up create havoc.