Brokers Woo ‘Snowball’ Buyers With 40% Returns After China Stock Market Rout

-- Chinese securities firms are dangling near record-high returns to lure investors back into the market for derivatives that fueled the nation’s stock selloff earlier this year, as fallout from the meltdown cuts deeper into their profits from the business.Trump Has Only $6.8 Million for Legal Fees With Trial Underway

An estimated 330 billion yuan of snowballs were outstanding as of November, according to UBS Securities Co. The exotic products pay investors bond-like coupons as long as the stock index they reference stays within a predetermined range.If the index rises above the range, then a “knock-out” is triggered, in which the contract terminates and the investor receives the coupon for the period to date.

That’s eating into profits of a business which, according to Kaiyuan Securities Co. estimates, contributed about 2.5% of net income at China’s listed securities firms last year. Other sources of profit from snowballs can hardly compensate for the hedging losses and still leave enough money to pay the coupons should the indices rebound further to hit knock-out levels before maturity, according to Liu. The CSI 1000 has jumped 23% from its Feb. 5 low.

Yu said the products are designed to the disadvantage of investors because they are only given one day each month for a potential knock-out, while a knock-in can happen any day the index is low enough. Clients also should be given more flexibility such as the option to exit early with their principal by giving up the coupon, or to extend the contract’s maturity by one year when needed, she added.

Brokerages are also offering revised product structures to meet investors’ changing risk appetite. They’ve been issuing snowballs with lower knock-in thresholds, and recently focused more on so-called phoenix products, which are more liquid and pay a monthly dividend as long as no knock-in occurs. Consider buying Parkland Fuel stock and another top dividend play on their recent corrections. The post Buy the Dip: 2 Strong TSX Stocks That Recently Went on Sale! appeared first on The Motley Fool Canada.With the cost of everything increasing due to stubborn inflation figures, finding cheaper alternatives for necessities like groceries is more important than ever. This is why we will look at groceries...

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Brokers Woo ‘Snowball’ Buyers With 40% Returns After China Stock Market RoutChinese securities firms are dangling near record-high returns to lure investors back into the market for derivatives that fueled the nation’s stock selloff earlier this year, as fallout from the meltdown cuts deeper into their profits from the business.
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