The Chinese hedge fund segment, worth about $1 trillion, could worsen the turmoil in the stock market, as massive losses force some portfolio managers to cover their loss by indiscriminately selling their assets.

Some 2,350 equity-linked hedge funds fell below the point at which they would normally need to cut holdings last month, with many close to the point at which they would need to be liquidated, Bloomberg reported, citing an industry data provider.

Such signs of stress are "close to historic highs," analysts at China Merchants Securities Co. said in a report.

A sign indicating that the situation has drawn attention of regulators is the fact that exchange operators began to ask some funds to assess the extent of pressure on their portfolios since March, writes Bloomberg, citing people familiar with it.

"The pressure on the market may be quite large after strong expansion of the industry last year," said Yang Hong, director of the Chinese hedge fund research center at the Shanghai Advanced Institute of Finance.

The Chinese stock index CSI 300 Index in January-April showed the worst performance since 2008. The index has fallen by about 17% since the start of the year as tough coronavirus policies and inspections of private companies hurt investor confidence. Weak statistics fuel fears that markets will remain under pressure if China does not change its approach.

The hedge fund segment grew 66% last year, with a total value of all assets under management of 6.1 trillion yuan ($903 billion). As of March 31, hedge funds managed 6.35 trillion yuan in assets.