At present, the actual holdings of the short-term, medium-term, and long-term securities investment portfolios in this column are 18.75%, 43.75%, and 35% respectively, and the overall market outlook is clearly bearish. In the current investment climate centered on artificial intelligence, banks are issuing large amounts of structured products linked to the stock price of Nvidia called Contingent Coupon Obligations (CCOs). To hedge against their own equity risk exposure, Nvidia must continuously perform dynamic hedging operations, including selling shares, shorting stock futures, and buying put options. As the maturity date approaches, when the stock price falls close to the knock-in level or market volatility spikes, these hedging sell orders tend to surge, creating significant downward pressure on Nvidia's stock price. Since Nvidia holds a very high weight in the Nasdaq 100 Index, the S&P 500 Index, and semiconductor-related indices, mechanical selling pressure on a single stock can easily trigger a capital rotation effect, rapidly affecting the entire technology sector and even the broader market, sparking substantial short-term declines. This type of structured product does not allow investors to benefit from stock price appreciation, making the hedging behavior inherently asymmetric. When the stock price rises, buying interest is limited; when it falls, selling pressure multiplies, amplifying market volatility and increasing systemic risk.
On the other hand, Oracle's Remaining Performance Obligations (RPO), which once showed long-term contracts worth tens of billions of dollars in AI cloud and infrastructure services, caused its stock price to surge significantly, as investors viewed it as a strong guarantee of future earnings. However, the market has since increasingly focused on the uncertainty surrounding the long-term conversion of these contracts, credit risks from major clients, and the substantial capital expenditures Oracle must incur to fulfill them. Moreover, high data center construction costs have turned free cash flow negative, increased debt levels, and led to some project loans trading at discounts in the secondary market, triggering rating pressures and rising financing costs. The negative feedback loop between credit and equity markets spreads rapidly through AI supply chains and infrastructure financing networks, not only pressuring Oracle's stock price but also causing ripple effects across related technology, semiconductor, and cloud services sectors. Overall, the hedging sell pressure from these structured products and the leverage risks associated with large corporate financing methods make the stock market more prone to sharp corrections under high valuation conditions, accelerating both the pace and magnitude of capital rotation from growth-oriented sectors into defensive investment products or value assets.
By Benny Y. H. Leung, Chief Investment Advisor, Economic Intelligence and Trading Intelligence (Website: www.BennyLeung.com)
*Articles signed and/or unsigned published in Economic Intelligence are the authors' personal opinions and do not represent the standpoint of Economic Intelligence. Economic Intelligence serves as a platform providing free speech.
On the other hand, Oracle's Remaining Performance Obligations (RPO), which once showed long-term contracts worth tens of billions of dollars in AI cloud and infrastructure services, caused its stock price to surge significantly, as investors viewed it as a strong guarantee of future earnings. However, the market has since increasingly focused on the uncertainty surrounding the long-term conversion of these contracts, credit risks from major clients, and the substantial capital expenditures Oracle must incur to fulfill them. Moreover, high data center construction costs have turned free cash flow negative, increased debt levels, and led to some project loans trading at discounts in the secondary market, triggering rating pressures and rising financing costs. The negative feedback loop between credit and equity markets spreads rapidly through AI supply chains and infrastructure financing networks, not only pressuring Oracle's stock price but also causing ripple effects across related technology, semiconductor, and cloud services sectors. Overall, the hedging sell pressure from these structured products and the leverage risks associated with large corporate financing methods make the stock market more prone to sharp corrections under high valuation conditions, accelerating both the pace and magnitude of capital rotation from growth-oriented sectors into defensive investment products or value assets.
By Benny Y. H. Leung, Chief Investment Advisor, Economic Intelligence and Trading Intelligence (Website: www.BennyLeung.com)
*Articles signed and/or unsigned published in Economic Intelligence are the authors' personal opinions and do not represent the standpoint of Economic Intelligence. Economic Intelligence serves as a platform providing free speech.
