What On Earth Is Going On With China Stocks: Snowball Derivative Liquidations Triggered As Critical Support Looms

After the Hang Seng fell 3.7% and CSI300 lost 2.2% on elevated Wednesday turnover (HK volume was over 30% above the 50-day moving average) with flows heavily skewed to the sell side, the collapse in Chinese stocks is accelerating Thursday morning, pushing the Shanghai Composite below 2,800 to the lowest level since 2020 and effectively unchanged for the past decade!

While we don't have today's data yet, yesterday's foreign selling through northbound of $1.81 bn was the single biggest day of outflows since March 2022 (and a top 10 outflow day since inception of StockConnect). The only heavy buying, according to UBS, was skewed to the defensively-perceived major banks. And while the listed catalysts for the sell off have been neither novel nor necessarily terribly impactful, UBS trader Simon Rebbechi notes that amid repeated calls for ‘capitulation’ in HK/China equities "perhaps this is finally it."