Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

How China's retail investor army got burned by the shock oil collapse

CommoditiesApr 24, 2020 12:30
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters.

By Emily Chow and Cheng Leng

SHANGHAI/BEIJING (Reuters) - China's retail investors take punts on everything from mainstream stocks to niche commodities and derivatives, and many were badly burned this week by exposure to U.S. oil contracts which collapsed below zero for the first time, wiping out several small accounts.

Bank of China (BoC) (SS:601988) (HK:3988), one of the providers of retail-grade investment products tracking U.S. oil futures prices, was forced to settle its crude oil "bao" product at minus $37.63 a barrel following the market collapse, leading investors to cry foul. Some banks marketed such funds as wealth management products.


The crude oil "bao", meaning treasure, is a structured product made up of a bundle of crude futures contracts. It is marketed by some BoC branches to individual investors and is directly linked to domestic and foreign crude oil futures contracts, including WTI and Brent. The product's minimum investment volume is one barrel, compared to 1,000 barrels per lot in standard oil contracts, making it appealing to retail investors.


Oil prices have plunged this year due to the spreading economic impact of the coronavirus pandemic, a price war triggered by major producers Saudi Arabia and Russia, and a shortage of storage for excess oil.

When WTI futures ended in negative territory for the first time on Monday, many crude oil-linked products racked up major losses, including the "bao".


Any investors in the BoC "bao" who did not settle or roll out of the expiring May contract ahead of the last trading day.

The BoC product allows investors to roll over their own positions into coming months, or automatically settles them on the final trading day of an expiring contract. BoC says they charge operational fees for the product but it is not the manager of the investment. The collapse in WTI futures occurred on the May contract's last trading day.

Other providers of oil-linked investment products in China, including Industrial And Commercial Bank Of China (ICBC) and China Construction Bank (CCB), rolled over their investor positions days ahead of the contract expiration, according to local media.


BoC has yet to disclose total losses or how many investors are tied to the oil "bao".

But the investors Reuters spoke to range from university students to white-collar workers, and dozens of online chatrooms formed by disgruntled investors have emerged this week, many with 200 participants or more per group.

Analysts at CITIC Futures, a sister company of China's largest brokerage CITIC, estimated in a note posted online on April 23 that total losses by institutions worldwide due to the WTI collapse could be nearly $4.7 billion.

U.S brokerage Interactive Brokers Group (O:IBKR) (IB) said on Tuesday it had to take an $88 million loss to cover accounts that were liquidated.


BoC said in a statement it had "completed the May contract expiry process according to earlier agreement" and has yet to comment on whether it will make any adjustments to investor accounts.

China's banking and insurance regulator has this week ordered banks, including BoC, to conduct self-investigations into similar oil-linked products, according to one BoC source. BoC has suspended clients from opening any new positions in the oil "bao."

Bank products that are linked to other global markets may also face a clean-up, and in the longer-term the focus may shift to products based on domestic futures exchanges, and not overseas, analysts and brokers say.

How China's retail investor army got burned by the shock oil collapse

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email