Shorts on the up for Chinese A-Share ETFs
28 July 2015 Shanghai
Image: Shutterstock
The Chinese securities market is seeing an increase in offshore-based investors using exchange-traded funds (ETFs) to access falling Chinese equities, while local investors are moving away from equity and in to fixed-income and money market ETFs, according to securities lending data from Markit.
Offshore investors can short sell about $1.2 billion in ETFs tracking Chinese markets, while the inflow from local investors to money market ETFs has reached a record high of $10 billion. As foreign demand to short sell has increased, cost to borrow has exceeded 25 percent.
Chinese regulators have been quick to blame short sellers for a dip in the market, however, according to Markit’s data, there has been minimal short selling in mainland-listed single names. Short sellers of ETFs should not be blamed either, as the aggregate short position represents less than 1.2 percent of the total assets under management of ETFs.
Instead, investors have gained short exposure to Chinese markets through Hong Kong- and US-listed ETFs, bypassing Chinese measures to stop these activities domestically.
In total, the value on loan of short bets on Chinese ETFs amounts to $1.23 billion. According to Markit, there is over $100 billion in ETFs tracking Chinese markets, and 57 percent of these are listed on the mainland in Shanghai and Shenzen exchanges.
These funds don’t see significant levels of short interest, with shorting action concentrated on overseas listed ETFs that trade on the Hong Kong Stock Exchange an New York Stock Exchange – locations that are more easily accessible to short sellers.
The highest levels of shorting activity occurred in China A-Share ETFs, as demand from short sellers has driven up the cost to borrow them higher than that to borrow H-Shares and ADR counterparts, which were previously the preferred route for short sellers.
The most short sold ETF exposed to the region is the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap ETF, with 52 percent of shares outstanding on loan, amounting to a value of $17 million in value. This stock tracks 500 small-cap companies on the Shanghai and Shenzen stock exchanges, and more than 90 percent of it is currently short sold.
Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, which focuses on the 300 most liquid stocks on the China A-Share market, is the most in demand ETF from short sellers. It has $595 billion in assets under management and $38 million in value on loan.
Offshore investors can short sell about $1.2 billion in ETFs tracking Chinese markets, while the inflow from local investors to money market ETFs has reached a record high of $10 billion. As foreign demand to short sell has increased, cost to borrow has exceeded 25 percent.
Chinese regulators have been quick to blame short sellers for a dip in the market, however, according to Markit’s data, there has been minimal short selling in mainland-listed single names. Short sellers of ETFs should not be blamed either, as the aggregate short position represents less than 1.2 percent of the total assets under management of ETFs.
Instead, investors have gained short exposure to Chinese markets through Hong Kong- and US-listed ETFs, bypassing Chinese measures to stop these activities domestically.
In total, the value on loan of short bets on Chinese ETFs amounts to $1.23 billion. According to Markit, there is over $100 billion in ETFs tracking Chinese markets, and 57 percent of these are listed on the mainland in Shanghai and Shenzen exchanges.
These funds don’t see significant levels of short interest, with shorting action concentrated on overseas listed ETFs that trade on the Hong Kong Stock Exchange an New York Stock Exchange – locations that are more easily accessible to short sellers.
The highest levels of shorting activity occurred in China A-Share ETFs, as demand from short sellers has driven up the cost to borrow them higher than that to borrow H-Shares and ADR counterparts, which were previously the preferred route for short sellers.
The most short sold ETF exposed to the region is the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap ETF, with 52 percent of shares outstanding on loan, amounting to a value of $17 million in value. This stock tracks 500 small-cap companies on the Shanghai and Shenzen stock exchanges, and more than 90 percent of it is currently short sold.
Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, which focuses on the 300 most liquid stocks on the China A-Share market, is the most in demand ETF from short sellers. It has $595 billion in assets under management and $38 million in value on loan.
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