Chinese regulators did the right thing by restricting the “umbrella trust” dodge for margin financing, and allowing institutional investors to lend securities (which provides more liquidity for short sellers). These measures knocked Hong Kong futures down 4% after the market’s Friday close, and prompted 5% drop in FXI, the China big-cap ETF favored by hedge funds as a short-term trading vehicle. When everyone is positioned in the same direction, any attempt to back up starts a stampede–which explains the ferocity of bear market rallies as well. Asia Unhedged sees the drop as a buying opportunity.

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