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Strategies & Market Trends : Greater China Stocks
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From: Julius Wong9/8/2011 7:44:30 AM
1 Recommendation   of 8334
 
China Puts Show No Faith in Wall Street Predictions for Rebound: Options
By Lynn Thomasson and Cecile Vannucci - Sep 8, 2011

Options to protect against declines in Chinese stocks are the most expensive in four years as traders lose confidence in forecasts for a rally by Credit Suisse Group AG, Morgan Stanley and Deutsche Bank AG.

The price for three-month bearish put contracts to sell the Hang Seng China Enterprises Index rose to 1.41 times the cost of bullish calls on Sept. 1, the most since March 2007 and up from 1.05 in May, according to data compiled by Bloomberg. Puts that pay owners should the gauge fall 10 percent cost 1.34 times bullish contracts as of yesterday.

Investors are seeking insurance from declines after the index of Chinese companies available to foreign investors fell 12 percent last month, the most since October 2008, leaving the stocks with the lowest price-earnings ratio in almost three years. Strategists say the equities are too cheap to pass up, with Credit Suisse forecasting a 23 percent rally in the index by year-end, while Deutsche Bank and Morgan Stanley recommend investors “overweight” the shares.

“People are more bearish because they remember the dramatic moves in the market” after the collapse of Lehman Brothers Holdings Inc. in September 2008, Winner Lee, the Hong Kong-based head of Asia derivatives strategy BNP Paribas SA, said in a Sept. 5 telephone interview. BNP was ranked as the top equity derivatives firm by Euromoney magazine in 2010. “You have people who are anticipating a crisis.”

bloomberg.com
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