© Reuters. Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York, U.S., November 15, 2023. REUTERS/Brendan McDermid/File Photo
By Saqib Iqbal Ahmed
NEW YORK (Reuters) – U.S.-listed, China-focused exchange-traded funds are seeing bullish options activity as investors await U.S. President Joe Biden’s meeting with Chinese leader Xi Jinping on Wednesday to see signs of easing friction between the two superpowers.
Some of the bullish positions included call options on the expire Friday.
The iShares Trust-China Large-Cap ETF also offers several at-the-money and upside call lines with significant open interest, including nearly 100,000 contracts at the 29.85 strike price. The ETF was trading at $27.28 on Wednesday.
Other large China-focused ETFs, including the iShares ETF and the KraneShares CSI China Internet ETF, also showed bullish options activity, according to Trade Alert data.
“It certainly seems like there’s generally bullish positioning going into the meeting,” said Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:), noting that the positions were built over several days. “Open interest in options expiring Friday is heavily tilted to the upside.”
Although some of the bullish positioning could be linked to a rally in the stock market as a whole – including a 1.9% rise on Tuesday that saw the Federal Reserve raise interest rates – investors are also likely speculating on a positive outcome of the meeting between Biden and Xi, Sosnick said.
“The bullish positioning of ASHR and FXI is almost certainly the result of pre-meeting enthusiasm, as it is heavily biased towards short-term upside calls and the positioning occurred before yesterday’s rise “Sosnick said.
Biden and Xi arrived in San Francisco on Tuesday, where they were scheduled to hold their meeting on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit. The meeting is scheduled for 2 p.m. ET (1900 GMT).
Investors’ emerging enthusiasm for Chinese stocks is at odds with the performance of these ETFs this year. The largest China-linked ETFs are down between 3% and 9% for the year. Meanwhile, the S&P 500 is up nearly 18%. In BofA Global Research’s November survey, fund managers named short selling Chinese stocks as the second “busiest” trade in the market. Daniel Kirsch, head of options at Piper Sandler, said recent bullish options flows into KWEB could be due to a combination of enthusiasm ahead of the Biden-Xi meeting as well as results from Chinese trading companies. e-commerce JD (NASDAQ:).com and Ali Baba (NYSE:). On Wednesday, JD.com reported a rise in third-quarter profit, while Alibaba’s results are expected after the market close. “People are looking for areas that could catch up (to the rally in broader markets),” Kirsch said.