China bears rush to short U.S. ETF at record pace as rally fades

Over half of 39 investors polled by Morgan Stanley this month said China\'s mainland stock market is in a bubble.

U.S. investors have never been so believing that the rally in China\’s mainland stocks is ending.

Short curiosity about the largest exchange-traded fund tracking yuan-denominated equities rose to a record 16 percent of shares outstanding Wednesday as bets on the price drop almost doubled from a month ago, based on data compiled by Markit and Bloomberg. Traders pulled $258 million from the Deutsche X- trackers Harvest CSI 300 China A-Shares ETF a week ago, the most because the fund was made in 2013.

Bearish sentiment is spreading because the Shanghai Composite Index went from the world\’s best-performing major benchmark carrying out a year-long rally towards the worst this week after Greece. The gauge of mainland stocks capped its biggest weekly drop since June 2008, sliding from the seven-year high. While bulls say China\’s monetary easing will support further gains, bears begin to see the market as unhinged from economic fundamentals.

The selloff \”has further to go before it returns to a a lot more rational trading pattern in contrast to this liquidity- induced bubble they are in right now,\” Michael Mullaney, who helps manage $12 billion as chief investment officer at Fiduciary Trust Co. in Boston, said by telephone Thursday. \”Everything will invariably eventually come back to the macro economic backdrop for China, which is still slowing.\”