Economy
China’s Epic Bubble Induced “E*trade Babies” Wiped Out In Market Crash
from Zero Hedge:
What do you get when a bursting equity bubble meets 5X leverage, structured finance, semi-literate banana vendors, and fund “managers” with less than one year of experience?
Harrowing margin calls, panic selling, and, in the end, massive losses.
As WSJ reports, the relentless, limit-down trading in Chinese stocks that unfolded last week and continued into Monday (despite the PBoC’s best efforts to arrest the slide with an emergency rate cut) has wreaked havoc on China’s rookie money managers and their unsuspecting clients with losses amounting to as much as 80% in some structured funds.
In China’s market bust, rookie fund managers and their investors are among the biggest losers.
The 10 worst-performing funds the past month are so-called structured funds, which are essentially leverage plays tracking some indexes, according to Howbuy.com, a Chinese fund tracker. The three worst performers fell by an average of 77% during the period.
Those funds were all led by professionals with less than a year of fund-management experience, according to details on Howbuy.com.
China’s mutual-fund industry was booming until recently. Structured funds were a star performer during a yearlong bull market. But they also have done poorly during the current market decline, which began over two weeks ago. The Shanghai Composite Index closed up 5.5% Tuesday, paring recent losses, but is still down 17% from a high in June.
Similar to leveraged exchange-traded funds in the U.S., structured funds can give investors two or three times the performance of an index. When markets are falling, though, these funds rapidly lose value, and can accelerate a selloff…
