China Traders Born in Bull Market Refuse to Believe It?s Ending
The biggest tumble in Chinese stocks since 2008 has done nothing to shake the resolve of bulls in the country?s options market, where bets on a rally have never been more popular.
Bullish wagers on the China 50 ETF have increased to the most expensive level versus bearish ones since the contracts? debut in February marked the start of equity-linked options trading in China. The ETF, which holds some of the biggest stocks in Shanghai, has dropped 13 percent from its June 8 high after surging 133 percent in the previous 12 months.
Options traders are doubling down on bets that monetary stimulus and reforms by state-owned companies will keep the rally intact, undeterred by strategists who say China?s equity market is a bubble poised to burst. The benchmark Shanghai Composite Index gained 2.2 percent on Tuesday, rebounding from an intraday plunge that sent share prices to one-month lows.
?Investors are using call options to make sure they won?t miss the boat should the market rebound strongly,? Li Jingyuan, general manager of the securities investment department at Shanghai Zhaoyi Asset Management, said by phone on Tuesday. ?Their belief in the foundations of the bull market, such as government reforms and loose monetary policies, isn?t shaken.?