Emerging Market ETFs: Investors Betting Against China

April 22nd at 10:20am by John Spence

The iShares FTSE China 25 (NYSEArca: FXI) and other ETFs for emerging economies have been lagging the S&P 500 and other developed markets in 2013. Some investors are positioning for further weakness in emerging markets by betting against the China ETF.

Short interest in the China fund is more than 3% of total shares outstanding, the highest since June 2007, according to Bloomberg News.

FXI is down 11% year to date while SPDR S&P 500 ETF (NYSEArca: SPY) is up about 10%.

Last week, China said its economy grew by 7.7% in the first quarter, less than economists had expected.

“The Chinese economy is showing soft growth momentum in the first quarter,” said Wei Yao of Societe Generale in a BBC News report. “All these figures showed that the economy is in a weak recovery.”

FXI, the China ETF, has experienced net outflows of more than $1.4 billion year to date, according to IndexUniverse.

Shares of the China ETF on loan, or short interest, doubled from 24.8 million at the end of March 2012, according to Bloomberg.

“There’s more uncertainty and less visibility. I am not expecting spectacular earnings from Chinese companies,” said Elena Ogram, portfolio manager at Bank Bellevue, in the report.

iShares FTSE China 25

china-etf-fxi

Full disclosure: Tom Lydon’s clients own SPY.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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