Tuesday, May 31, 2016

The Biggest Short: China

Someone should inform gamblers that a short on China is a short on the "status quo"...

Short interest in one of the largest Hong Kong exchange-traded funds tracking domestic Chinese stocks has surged fivefold this month to its highest level in a year, according to data compiled by Markit and Bloomberg. The last time bearish bets were so elevated, such pessimism proved well-founded as China’s bull market turned into a $5 trillion rout.

The Chinese currency is heading for its biggest monthly loss since last year’s devaluation as the nation’s economic outlook worsens and the Federal Reserve prepares to raise borrowing costs, driving a rally in the dollar.

Short interest in the CSOP FTSE China A50 ETF climbed to 6.1 percent on May 25, the highest level since April 2015, two months before Chinese equities peaked, and up from 1.3 percent at the end of last month. Bearish bets in the U.S. traded iShares China Large-Cap ETF jumped to a two-year high of 18 percent of shares outstanding on the same day, up from 3 percent a month ago, data compiled by Bloomberg and Markit show.

Even as Chinese equities rallied on Tuesday, traders were rattled by a sudden plunge in index futures.

U.S. listed Chinese stocks versus Hong Kong Hang Seng Index

"No hedging and no big orders allowed"

Last night:

"Futures exchange urges investors to pay attention to liquidity"
"A single investor caused a -12% Flash Crash while attempting to hedge"

“Liquidity in the market is really thin at the moment, so the market will very likely see big swings if a big order comes in.”

Two weeks ago:

May 17, 2016

A two-minute plunge and snap back by Chinese stock futures in Hong Kong has added to the nervousness in the city’s market, amid concerns over China’s economy.