Slowing growth notwithstanding, some investors are turning
bullish on China, as measured by the rising tide of call options
that were traded in June, according to AlphaShares, the firm that
designs indexes focused on the world's second-biggest economy.
The number of call options traded on the iShares FTSE China 25
Index Fund (NYSEArca:FXI) jumped to 1,577,069 in June, the most
since 2,121,456 traded in December 2007, Walnut Creek, Calif.-based
AlphaShares said in a press release.
Moreover, the balance between put and call is shifting in a
bullish direction, the firm said, noting that the monthly put/call
ratio averaged 1.34 for the first five months of the year and
dropped to 0.59 in June. The latter number means that for every put
contract traded in June, 1.69 calls changed hands.
It's probably sensible to think about taking with a grain of
salt much of what AlphaShares says about China, since its business
plan rests on the continuation of China's meteoric rise over the
past 30 years.
But then again, AlphaShares' enthusiasm comes days after China's
central bank cut official borrowing rates by 25 basis points-a move
that caught many investors by surprise and was the latest sign that
Chinese policymakers are willing to set aside their fight to keep a
lid on inflationary pressures in the name of revving up the
economy.
In any case, investors have been increasingly fretting about a
slowdown in the Middle Kingdom. Growth there eased to 8.1 percent
in the first quarter, and analysts expect the annualized rate to
come in at 7.5 percent in the second quarter, according to the Wall
Street Journal. The country has been growing at an annualized rate
of 10 percent since 2000 and, increasingly, is becoming a barometer
for global growth.
"Whereas 'Don't fight the Fed' is a popular investment adage in
the U.S., 'Heed to the Premiere' is becoming a directional trade in
the Chinese equity markets," Jonathan Masse, portfolio manager at
Baochuan Capital and a member of AlphaShares' index committee, said
in the release, referring to Chinese Prime Minister Wen Jiabao.
Chinese GDP Report A Big Deal
That first snapshot of second-quarter growth is due for release
this Friday, July 13, and will undoubtedly be one the biggest
events in financial markets for some time.
A strong number above expectations would almost certainly
validate the bullishness that AlphaShares is spying in the FXI
options how's evmarket.
Masse also said Chinese officials are clearly signaling that
they intend to spur growth, and then follow through-a consistency
of message and action that isn't terribly common elsewhere in the
world.
"For the month of June, options traders took great notice as
fears were much relieved," he said.
On the flip side, a second-quarter growth number at or below
expectations is sure to add a ton of worries to investors
increasingly traumatized by the prolonged period of uncertainty and
volatility since the market meltdown of 2008-2009.
Declining Volatility
The indexing firm also noted that its very own AlphaShares
Chinese Volatility Index (ASCNCHIX) ended June at 21.76 after
hitting a six-month high of 31.10 on June 4. It fell by more than a
fifth in June and by more than 17 percent year-to-date.
That decline paralleled falling volatility of the CBOE S&P
500 Volatility Index, or VIX, in June. The VIX fell by more than a
third last month, ending June at 17.08, when the S&P 500 Index
rose almost 4 percent, AlphaShares said.
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