The wealthy in China returns again to pump their money into financial derivatives known as “Snow Ball” to obtain higher returns, after a year that the regulatory agency restricts these products that were thrown on which the blame exacerbated the collapse of the stock market.
Investors with large wealth have pumped tens of billions of yuan into modified copies of these derivatives since the beginning of this year, in light of the remaining interest rates. Chaina Mercanz Bank has allocated more than 30 billion yuan ($ 4.2 billion) of these products issued by mediation companies, according to persons familiar with the topic who refused to reveal their identities due to the information especially.
High returns
While the latest versions confirm that they are less dangerous, most of these products still offer annual revenues of approximately 20%, according to the company “China International Capital”. Bloomberg’s market data indicates that some of these products have achieved annual returns of 71% in rare cases.
The revival of what is currently known as a “snowball similar” comes about a year after the regulators tightened control of these products in order to limit the demand of individual investors, after brokerage firms promoted record returns despite the significant decline in shares. This reflects the lack of high -yielding investment alternatives in China, as interest rates decreased as part of official efforts to support growth.
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The Chinese Securities Regulatory Committee has refused to comment on the issue, and Chena Mercanz has declined to comment.
The “Snow Ball” contracts give investors similar to the distributions of bond returns as long as the reference index remains within a pre -determined range – usually between 75% and 105% of the level of the start of the contract. If the indicator breaks the minimum, the so-called KNOCK-in is a loss, and the investor bears a loss equivalent to the volume of the decline. If the market rises to the level of the contract (KNOCK-OUT), the investor gets the returns for the period of possession of the contract while the contract is terminated.
Contract amendment
The new “Snow Ball” contracts are re -designed to extend the deadlines for merit and reduce the number of monitoring days for the condition of activating the loss, in order to reduce the chances of losses.
“The risk file and the returns in the snowball are still attractive,” said Leo Votation, the founding partner of the Galaxy Technologies. He added that the high stock indicators in the past months made the current conditions “very appropriate” for these products.
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Years after shares and real estate declined and poor returns in other investment tools, high -revenue “snowball” contracts became a source of profit amid the scarcity of assets that make great gains, “according to the” Senghai Santime Information Technology “consultant.
Nevertheless, the organizers remain alert for fear of any disturbances, after they raised the minimum investment in “Snow Ball” last year to 10 million yuan instead of a million yuan, to exclude the least experienced investors, and imposed maximum limits on the total business size.
Changing revenue vouchers
Similar products to less rich investors appeared known as “variable returns bars”, and requires a minimum investment of one million yuan. These products depend on a similar structure and pay the monthly returns of approximately 1%. A small percentage of which allows the use of a financial lever – sometimes exceeding 300% – based on the requests of professional investors. The loss is achieved only if the reference indicator is closed under the minimum at the date of the entitlement.
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The “China International Capital” last April estimated the size of the “Snow Ball” contracts and the voices of changing returns at about 100 billion yuan, equivalent to half its size in the beginning of 2024, indicating that major disturbances such as those that occurred last year are not likely. The company analysts expect that the returns and size will rise “quickly in the short term.”
The stock market has continued to rise since then, which prompted many of these products to levels of activation of the contract termination. In one case, a financial product associated with the CSI index achieved a return of approximately 18% in only 3 months after selling it in mid -April, according to market data.
Many investors are likely to re -invest their financial gains after activating the condition of termination of the contract in “Snow Ball” products or changing returns vouchers, according to Liu. He pointed to the increasing conviction of investors that any correction movement in the next year or two will not be sharp enough to break the minimum protection limit, especially with the government’s commitment to support the market.
“With these expectations, investors will feel that the risks are relatively low,” Leo continued, adding that “current buyers are more experienced than before. If you can collect a voucher with returns more than 10% or 20%, you will consider it a very good deal.”
Fears of loss
Nevertheless, the extension of the deadlines of entitlement – which now reaches 3 years – and the absence of monitoring the condition of activating the loss during the period of possession of the contract may increase the risks facing brokerage firms. Issuing authorities may have to adopt a more powerful pricing to compete for the market share, which exacerbates the possibilities of losses if market conditions change.
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If the stock market continues to rise, it will do more of the condition of termination of the contract, allowing brokerage companies to maintain the flow of these products despite compliance with the maximum limits imposed by the regulators. “We will likely see the continued issuance operations, a wave after the other,” Liu added.
