Last month, Qi Weibao boarded a plane in his hometown of Tianjin bound for Hong Kong. It was his 11th trip in two years. His mission was not to shop or see the sights but to continue his battle with HSBC, one of the world's largest banks.
A 37-year-old businessman with a young autistic son to support, Qi contends that HSBC sold him a complicated investment called an accumulator without sufficient warning of the risks.
Qi is among a group of mostly Hong Kong and mainland investors who bought into the hot investment products in 2007 only to see them go sour a year later as the global financial crisis unfolded. Some banks that sold the products are still facing lawsuits. But that is not stopping them from once again marketing accumulators, which are tied to market performance, and yield-hungry investors are snapping them up.
In a sign that accumulators are on a comeback, the Hong Kong Monetary Authority sent out letters in late December to various financial institutions reminding them of the importance of clearly stating the risks involved with the products.
'For the coming year, the market is expected to go up, so investors are buying accumulators again,' says Chim Pui-chung, a Hong Kong lawmaker representing financial-services interests. Still, he warned that history could repeat itself. 'If the market goes down, there will be problems.'
Accumulators are basically derivative contracts that enable investors to buy stocks or currencies or commodities at a fixed price - usually at a discount to the market price - over a certain period of time, typically three to 12 months. If the price of the underlying asset goes up over the lifetime of the contract, investors profit. To limit the ultimate payout by the seller of the product, the contracts always have a cap as to how much the price of the underlying asset can rise before it triggers the termination of the contract.
But because of the way the product is leveraged, if the price falls, investor losses could be many times the initial investment.