Source: CCTV.com

04-15-2009 18:16

The reiteration of the ban on speculative derivatives trading came after many companies suffered heavy losses on financial derivatives investments. Experts say the warning from the Ministry of Finance is timely, and they suggest investors should be more prudent.

The reiteration of the ban on speculative derivatives trading came after many companies suffered heavy losses on financial derivatives investments.

The latest example of big loss on financial derivatives is from CITIC Pacific. It is a Hong Kong-listed conglomerate whose parent company is the CITIC Group in the Chinese mainland. The company reported a huge loss of more than 15-billion Hong Kong dollars from unauthorized hedging against changes in the exchange rates of foreign currencies, notably the Australian dollar.

Yang Gangming from Institute of Economics, CASS, said, "The problem for CITIC Pacific is that the risks and profits on the contracts were not balanced. The company intended to earn at most 400 million Hong Kong dollars at the expense of 1.5 billion Hong Kong dollars, it's totally unreasonable."

Most of financial derivatives were created by foreign investment banks. And, in recent years, more and more Chinese companies became buyers. The global financial crisis had dramatically fluctuated the derivatives prices, so these companies suffered big loss.