Turmoil in China's stock markets could worsen significantly if portfolio losses force hedge funds to dump shares, according to a report by Bloomberg.

Bloomberg cites a report by China Merchants Securities Co which quotes an 'industry data provider' as revealing that last month approximately 2,350 stock-related hedge funds dropped below a threshold that typically activates clauses forcing them to reduce their exposures with many said to be close to a level that would force them to liquidate their holdings.

Though unusual in other markets, such rules are common in China having been introduced to protect investors from big losses.