Samsung Securities Co. analyst Jun Gyun is reporting that 2.7 trillion won, or $1.9 billion worth of equity-tied securities that were bought mostly by South Korean retail investors are now at risk of capital losses, because of the Hang Seng China Enterprise Index’s fall below 5,000.

After falling briefly below 5,000 on Monday, the index rebounded back above that level. However once derivative products fall through key points, such as what are called “knock-in” levels, investors run the risk of losing most of their principal.  That, in turn, can increase volatility on the futures markets, as investors who had used futures to hedge their holdings are forced to liquidate their positions.

Already 5 trillion won of so called autocallables which were tied to the index had been put at risk when the index dropped below 6,000 in early October according to Gyun. Any further decline in the gauge may trigger more volatility in the futures markets.

The Hang Seng is one of the most popular measures to tie these complicated structural products to, along with the S&P 500 Index, Euro STOXX 50 and Kospi 200. Many retail investors move into them due to the rich returns they offer at a time when interest rates are lower.

Gyun noted there are still $15 billion in autocallables linked to the index which have not matured yet, and which could turn into losses as the gauge plummeted after the Chinese Communist Party meeting ended last week and Beijing moved toward further Covid lockdowns, which is suppressing the market.