​Weekly: Hedge Monetizing, HSCEI Dips Below 9,000

With Chinese markets shaking the global economy yet again, it seems like the only thing holding up U.S. equity is a lack of alternatives. Oil’s in a rout, bonds don’t look that great and gold hasn’t been the best performer over the last couple of years, while real estate in most major markets is looking overpriced. Meanwhile, some investors have gotten pretty used to sharp rallies following big declines over the last couple of selloffs. So does this decline have legs? Some investors are monetizing their hedges and buying downside protection in a bid to mitigate losses should the decline continue. While not resorting to opening new hedges, they’re at least putting something in place. In Asia meanwhile, the Chinese crash sent HSCEI spot spiraling downwards below 9,000 this week, a key level that will likely drive exotic books to buy back vols to hedge their autocallables at a rapid rate. Long-dated volatilities in the HSCEI have so far only seen minor increases, while some hedge funds this week have been buying downside long-dated puts in order to play the theme. Don’t forget to check out our first event for 2016. We’ll be co-hosting with the Singapore Exchange the Asia Buyside Strategies Forum on Feb. 4 at The Lansdowne Club, Mayfair, in London. Visit the events page for more details.