FXI — the iShares China Large-Cap ETF — enters the final days of June with short sellers maintaining elevated positions even as the borrow market eases back toward normal, creating a split between the conviction of the bears and the diminishing squeeze pressure behind them.
The bearish thesis remains deeply entrenched by any standard measure. Short interest ended the week at 31.3% of float — up 11.3% over the past five sessions and 15.1% higher than a month ago. That's a continuation of the rebuild documented in the June 17 note, when bears had just started adding back after a sharp covering wave earlier in the month. The round trip is now complete: short interest troughed near 27% around June 11, bounced back toward 29% by mid-month, and has extended further to 31.3% this week. Bears have not just trimmed their exits — they've added back past where they started covering. The ORTEX short score reflects this, running at 65 on a 0-100 scale, though it has eased modestly from a recent high of 67.6 on June 12, suggesting the rate of bearish deterioration has plateaued rather than accelerated.
The borrow market tells a sharply different story from late May's squeeze conditions. Availability has loosened dramatically — 127.9% now, meaning more shares are available to borrow than are currently short. That's a complete reversal from June 1, when the lending pool was essentially exhausted and availability sat at just 4.3%. Cost to borrow has ticked up 23% on the week to 0.79%, its highest since early June, but that follows a period of unusually cheap borrowing — the broader trend over the past month is actually a 12.5% decline in CTB. Bears can add to positions without significant friction, which removes one of the natural pressures that would force covering. The absence of a squeeze mechanism is notable given the high level of short interest.
Options positioning offers a further counterpoint to the bearish short data. Call demand has been quietly running ahead of put demand — the put/call ratio sits at 0.82, below its 20-day average of 0.86, and near the 52-week low of 0.76 hit just last week. That's about one standard deviation below the recent mean, meaning options traders are more call-heavy than usual. Whether that reflects genuine bullish conviction or hedging against a short squeeze is unclear, but the pattern has been consistent: since early June, the PCR has fallen steadily from above 0.90 to its current level, a drift toward calls that runs directly against the rebuilding short position.
Institutional ownership adds texture to the divided picture. The top holder, Morgan Stanley, trimmed its position by 4.7 million shares as of the March quarter-end — the largest reduction in the top-15. Against that, Citigroup added 6.3 million shares, Goldman Sachs added 2.9 million, and Brevan Howard entered a new position of 6 million shares. That latter entry is worth noting: a macro hedge fund building a fresh long while short sellers simultaneously add is a classic standoff between structural bears and tactical longs.
The price action has gone against the longs over the past month — FXI is down 7.6% in 30 days and dropped another 5% this week to $32.83, reflecting broader pressure on Chinese large-cap names. The divergence to watch is whether the continued price weakness prompts further short addition or whether the already-elevated short interest, now back above 31% of float, begins to generate its own covering pressure as the borrow environment stays loose and options traders lean toward calls.
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