Hedge funds such as Millennium Management and Athos Capital Ltd. are experiencing losses due to the unexpected collapse of a deal involving two Chinese pharmaceutical companies.

This situation highlights the risks and volatility associated with investing in the Chinese market, particularly in the pharmaceutical sector.

China Traditional Chinese Medicine Holdings Co., in which Millennium held a 5.1% stake, saw its shares drop by 35% after regulators rejected a take-private offer from China National Pharmaceutical Group Co. Athos Capital, which had increased its stake to as much as 5.3% earlier in the week, has also reduced its holdings in response to these developments.