China ETFs draw bullish options bets on AI play and eased tariff fears
By Saqib Iqbal Ahmed
NEW YORK (Reuters) - U.S.-listed exchange-traded funds focused on China have drawn bullish options flows as the emergence of artificial intelligence startup DeepSeek brightens the outlook for Chinese tech shares, and tariff-related news seemed less threatening than before.
Traders have been loading up in recent weeks on bullish options on the KraneShares CSI China Internet ETF and the iShares Trust-China Large-Cap ETF, the two largest Chinese equity ETFs with combined assets of about $15 billion, options data showed.
One-month average daily trading volume in KraneShares CSI China Internet ETF call options, typically bought to position for upside, outnumbers defensive put options nearly 5-to-1, close to the most bullish this measure has been in about four years, Trade Alert data showed.
Options on large-cap focused FXI have also been in high demand with skew - a measure of relative demand for calls and puts - showing traders' preference for call options, recent Cboe data showed.
"There's been a lot of interest in China upside. That's definitely been a big theme," said Alex Kosoglyadov, managing director for equity derivatives at Nomura.
Chinese stocks have rallied in recent weeks as investors rush into AI-related stocks, betting that DeepSeek's advance will lead to a boom in the sector and give China the upper hand in an intensifying Sino-U.S. technology war.
FXI shares have risen about 12% and KWEB shares are up 14% since Chinese startup DeepSeek's late January rollout of its free AI assistant it said uses cheaper chips and less data, seemingly challenging the United States as an AI superpower.
"People are definitely growing optimistic about China's potential to produce an AI ecosystem that's competitive with what the U.S. has been building out," Kosoglyadov said, noting bullish flows into the FXI and KWEB ETFs.
Some of the options optimism may also have to do with tariff-related relief.
U.S. President Donald Trump had promised 60% tariffs on Chinese imports before he was elected, but revised that to 10% after taking office.
Global hedge funds keen to navigate U.S.-China trade tensions are amassing Chinese stock bets in the hopes of making huge profits if Beijing forms a pact with Trump, or if the rest of the world and China unite against him.
"I think people are ultimately optimistic because you've had a much softer tone on China from the Trump administration, if you compare what we heard during the campaign," Kosoglyadov said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
San Francisco Chronicle
12 minutes ago
- San Francisco Chronicle
US and China are holding trade talks in London after Trump-Xi phone call
LONDON (AP) — High-level delegations from the United States and China are meeting in London on Monday to try and shore up a fragile truce in a trade dispute that has roiled the global economy, A Chinese delegation led by Vice Premier He Lifeng is due to meet U.S. Commerce Secretary Howard Lutnick, Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer at an undisclosed location in the city. The talks are due to last at least a day. They follow negotiations in Geneva last month that brought a temporary respite in the trade war. The two countries announced May 12 they had agreed to a 90-day suspension of most of the 100%-plus tariffs they had imposed on each other in an escalating trade war that had sparked fears of recession. Since then, the U.S. and China have exchanged angry words over advanced semiconductors that power artificial intelligence, 'rare earths' that are vital to carmakers and other industries, and visas for Chinese students at American universities. President Donald Trump spoke at length with Chinese leader Xi Jinping by phone last Thursday in an attempt to put relations back on track. Trump announced on social media the next day that trade talks would be held on Monday in London. 'We are a nation that champions free trade and have always been clear that a trade war is in nobody's interests, so we welcome these talks,' the British government said in a statement.
CNBC
16 minutes ago
- CNBC
China and U.S. trade officials to hold talks in London
U.S. President Donald Trump's top trade officials are meeting their Chinese counterparts in London on Monday for talks aimed at resolving an ongoing trade dispute between the world's two largest economies. U.S. Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer are representing the U.S. China's foreign ministry said on Saturday that Vice Premier He Lifeng, Beijing's lead trade negotiator, will be in the U.K. between June 8-13, and that a meeting of the "China-U.S. economic and trade consultation mechanism" would take place. The talks come after Trump last week said that he had held a lengthy phone call with Chinese President Xi Jinping as both look to avert a full-blown trade war. Diplomatic efforts by both sides have ramped up after weeks of heightened trade tension and uncertainty after Trump announced sweeping import tariffs on China and other trading partners in April. Beijing retaliated, and a tit-for-tat escalation in duties ensued before both sides agreed in Geneva in May to temporarily slash duties and facilitate talks. At the time, the U.S. tariff on Chinese imports was cut from 145% to 30% , while China's levies on U.S. imports were lowered from 125% to 10%. China and the U.S. have since repeatedly accused each other of violating the Geneva agreement, with Washington saying Beijing was slow to approve the export of additional critical minerals to the U.S., while China criticized the U.S. imposing new restrictions on Chinese student visas and additional export restrictions on chips. U.S. Press Secretary Karoline Leavitt on Sunday said that the London talks would focus on moving forward with the Geneva agreement, noting the two sides' strategic interests in each other's markets.
CNBC
29 minutes ago
- CNBC
China extends an olive branch to Western auto giants over rare earth shortage
China appears to have offered U.S. and European auto giants something of a reprieve after industry groups warned of increasing production threats over a rare earth shortage. China's Ministry of Commerce on Saturday said it was willing to establish a so-called "green channel" for eligible export license applications to expedite the approval process to European Union firms. A Ministry of Commerce spokesperson said Wang expressed hope that the EU would take "reciprocal steps" and adopt measures to promote compliant trade of high-tech products with China. The breakthrough comes after trade talks between Chinese Commerce Minister Wang Wentao and EU Trade Commissioner Maros Sefcovic met in Paris, France last week. Beijing also granted rare earth licenses to suppliers of U.S. auto giants General Motors, Ford and Jeep-maker Stellantis, Reuters reported on Friday, citing unnamed sources. The report said China's Ministry of Commerce did not respond to a faxed request for comment. CNBC has contacted GM, Ford and Stellantis. China's Ministry of Commerce in early April imposed export restrictions on several rare earth elements and magnets widely used in the automotive, defense and energy sectors. The curbs were part of a response to U.S. President Donald Trump's tariff increase on Beijing's products. Some of the affected rare earth elements were critical components to the production of both combustion engines and electric vehicles. Maximilian Butek, an executive director and board member of the German Chamber of Commerce in China, said the weekend announcement was certainly good news for European businesses, but noted that it remains unclear whether the fast-track channel applies to large-scale firms or to sectors more broadly. "It is a huge bureaucratic monster that they've created and I'm not sure if they really can now speed up the process and give the licenses to those who need them," Butek told CNBC's "Europe Early Edition" on Monday. Europe's top automakers will welcome the diplomatic breakthrough, Butek said, while stressing the European bloc's need to improve supply chain diversification. "It all hit us quite by surprise that China is even willing to draw this card because this is a retaliation measurement towards the tariffs the U.S. implemented, right? And we, as European companies, we are now in the crossfire of this trade escalation, and this is really not where we want to be," Butek said. "It is not enough just to announce it but they have to show it," he added. China is the undisputed leader of the critical minerals supply chain, accounting for roughly 60% of the world's production of rare earth minerals and materials. U.S. officials have previously warned that this dominance poses a strategic challenge amid the pivot to more sustainable energy sources. Some analysts have compared the industry-wide squeeze on supplies of rare earth magnets to the global semiconductor crisis that disrupted automotive production during the coronavirus pandemic. Speaking to CNBC before China announced plans to expedite the approval process of rare earth exports to the EU, the European Automobile Manufacturers' Association (ACEA) said some of its members were at risk of production outages starting as soon as next month. The car lobby group, which represents the likes of Stellantis, Renault, Ferrari, Volkswagen and Volvo, said rare earth export licenses by China's Ministry of Commerce had been taking a "significant" amount of time to process since the April restrictions came into force. "Generally, global stocks of these magnets are quite low. And, given that China is the bulk global supplier, it has meant that, in the absence of these export licenses, those stocks have been depleting progressively since the start of April," Jonathan O'Riordan, international trade director at ACEA, told CNBC by phone. "We're gradually coming into a very, very critical moment whereby those stocks are now being exhausted, and we are potentially going to see production stoppages," he added. ACEA's warning followed a separate ominous update from the European Association of Automotive Suppliers. Last week, the group said that several auto supplier plants and production lines had already been shut down due to Beijing's recent export restrictions, with further outages expected as rare earth inventories deplete over the coming weeks. Japanese automaker Suzuki Motor, however, suspended production of its Swift car due to China's rare earth curbs, Reuters reported Thursday, citing two unnamed sources. A Suzuki Motor spokesperson did not respond to a request for comment when contacted by CNBC. Demand for rare earths and critical minerals is expected to grow exponentially in the coming years as the clean energy transition picks up pace.
