FXI — the iShares China Large-Cap ETF — enters the back half of July with its lending market near-frozen and short interest still climbing, a combination that has now persisted for several days without resolution.
The borrow crunch that was flagged yesterday has not eased. Availability this week dipped as low as 0.26% on July 20 before recovering slightly to 0.59% on July 21 — still effectively at the floor, with fewer than one share available for every 170 already lent out. A month ago, availability was above 130%. That collapse happened fast. Cost to borrow has risen more than threefold since early July, hitting a recent peak of 2.01% last Thursday before settling back to 1.64% — still more than four times the sub-0.40% levels seen in the first week of the month. The lending pool is, for all practical purposes, exhausted.
What makes the current reading notable is that short interest kept growing even as availability vanished. Shorts now represent 36.9% of free float — up 6.4% on the week and 31% over the past month. That is a significant accumulation. The ORTEX short score of 69.5, which has edged higher through most of July, reflects the sustained one-directional pressure. When a borrow market runs this tight and shorts are still building, it typically means existing holders are rolling at higher carry costs rather than new positions being initiated cheaply — a crowded, increasingly expensive trade.
Options positioning has pulled back from the extreme defensive reading of July 20, when the put/call ratio touched 0.87 and sat nearly 2.4 standard deviations above its 20-day mean. The ratio has since eased to 0.82 — still modestly elevated relative to the 0.77 recent average, but no longer flashing the acute caution signal of earlier in the week. The 52-week PCR range runs from 0.72 to 1.23, putting the current reading in the lower third of that band. Options traders appear to be hedging, not panicking.
On the institutional side, the holder list tells a story of diverging conviction. Morgan Stanley remains the largest reported holder at 14.1% of shares but trimmed nearly 4.7 million shares in Q1. Brevan Howard, by contrast, entered the register in Q1 as a new holder with 6 million shares, while Citigroup added 6.3 million and Goldman Sachs added 2.9 million over the same period. BlackRock added 2.7 million through June 30. The pattern is one of some large sell-side institutions cutting while hedge funds and others build — consistent with FXI being actively traded as a macro expression on Chinese equities rather than a passive long-term hold.
The key dynamic to watch is whether availability stabilises above zero or continues to bounce along the floor. As long as it remains below 1%, the cost of maintaining short positions will stay elevated, and any shift in sentiment toward China — trade news, stimulus announcements, or a broader risk-on move — could force position adjustments in a market with almost no borrow cushion left.
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