China-based macro hedge fund manager Li Bei, the founder of Shanghai Banxia Investment Management Center, has sounded the alarm over a popular type of derivative, following the country's stock rally, according to a report by Bloomberg.

In an article published earlier this week, Li advised against investing in so-called “snowball” products, a tool she used to buy at the bottom of the market late last year, pointing out that due to the recent recovery in China equities, investors buying the option-based contracts could suffer losses. 

Li's comments came after financial institutions used her trade to promote the products.

“Times have changed and snowball-type products have become less of an optimal choice,” wrote Li, whose firm has chalked up an annualised return of 33% for the past five years. She added that she hasn’t built any positions with “snowball” products this year, and will “absolutely not buy” any in the next month.  

Snowballs can generate annualised returns typically between 12% to 20% in China, as long as the underlying indexes or individual stocks don’t fall below a preset level.