Hedge funds caught short China shares, huge losses exacerbated by Shanghai exchange glitch

Info comes via a (gated) Bloomberg report. It reports that the Shanghai Stock Exchange conducted weekend stress tests, requesting brokerages take part in these tests after its systems faced difficulties handling a surge in trading activity on Friday.

Weekend simulations included processing 270 million transactions according to a statement from the exchange. This is twice the previous record and three times the orders placed on Friday said the statement.

The report goes on to describe how some hedge funds, which held short positions in stock-index futures and long positions in equities, struggled to sell their shares quickly enough on Friday to meet margin calls for their futures, owing to exchange-related delays in order processing. Thoughts and prayers etc….

Monday is the final trading session ahead of a week-long national holiday, when the exchange will be closed. Expectations are high for significant price jolts. Some hedge funds are still managing their margin calls after brokerages granted them extra time to gather cash, which may create selling pressure on certain shares and government bonds on Monday.

The skyrocketing Chinese markets (in the wake of stimulus announcements), has seen a similar skyrocketing surge in buying activity among China’s retail investors, along with new account openings.

This article was written by Eamonn Sheridan at www.forexlive.com.