Investors Seek ETF To Protect Against The Great Wall Of China’s Crumble

MarketMuse blog update is courtesy of Business Times’ article “China slowdown concern spurs record option hedges on ETF” . The update profiles the largest US exchange-traded fund tracking China’s mainland market reaching its highest since the ETF was created. An excerpt from Business Times is below. 

Investors are rushing to buy protection against declines in Chinese stocks amid concern an economic slowdown will undermine their world-beating rally.

Demand to hedge against future losses on the largest US exchange-traded fund tracking China’s mainland market climbed to the highest since the ETF was created in November 2013, according to data compiled by Bloomberg. The buying pushed the ratio of bearish to bullish contracts to a five-month high on March 11 as investors pulled $34 million from the fund in a second week of outflows.

The bets underscore growing investor skepticism that the Shanghai Composite Index can sustain its advance after rising 39 per cent since October against a backdrop of monetary easing and weaker-than-estimated economic data. The central bank has cut interest rates twice in four months to revive an economy expanding at its slowest pace in 24 years, helping fuel gains in the so-called A-share market.

“There’ll be some pull-back,” Chang Liu, a London-based China economist at Capital Economics Ltd, said by phone on March 12. His firm predicts a decline of about 11 per cent from last week’s close on the Shanghai gauge by the end of 2015.

“GDP growth will be slower, the property market remains weak and overcapacity is still an issue.”

Purchases of so-called puts, or options to sell the US$1 billion Deutsche Bank’s X-trackers Harvest CSI 300 China A- Shares ETF, has jumped fourfold to an all-time high of 44,760 contracts last week from a January low. The open interest on options to buy the ETF, or calls, increased 45 per cent during the period to 52,924, also a record.

For the entire article from the Business Times, click here.