China's Stock Market Turmoil: Trillions Lost and Investor Exodus
China's stock market decline has led to significant losses on derivatives tied to the country's equity indexes, triggering a cycle of selling in stocks and futures contracts as market participants manage their risks. The drop has hit "snowball" products, leading to forced selling of stock futures contracts and further pressuring the market. Analysts estimate the outstanding notional amount in such products to be around $50 billion, with roughly 40% of knock-ins likely being hit. As knock-in levels are reached, brokers are selling stock index futures to hedge their exposures, and the divergence between futures prices and spot prices is drawing in arbitrageurs.