KWEB enters mid-May with a striking split: options traders have rarely been this bullish on Chinese internet in the past year, even as short interest has nearly doubled over the past month.
The options signal is the sharpest datapoint on the board right now. The put/call ratio has dropped to 0.26 — more than two standard deviations below its 20-day average of 0.35. That is close to the lowest reading of the past 52 weeks, with only a floor of 0.24 as a reference point. In practical terms, calls are swamping puts by a ratio that has not been seen in the ETF for roughly a year. It reflects conviction among options traders that Chinese internet stocks have further to run from here, not just tactical hedging against a bounce.
Short interest tells a different story. Bears have been rebuilding aggressively: short interest as a percentage of float has climbed to 17.6%, up roughly 54% over the past month. That is the sharpest pace of short accumulation in the data window, driven largely by a jump between late April and early May. On a week-over-week basis the move is more modest — short interest is roughly flat across the week — but the one-month trend is hard to ignore. For context, short interest was running closer to 11% of float in early April. The bears building that position have not covered despite the ETF gaining around 2% on the week.
Borrow conditions remain surprisingly relaxed for a vehicle with this level of short interest. The cost to borrow is 0.54% annualised — fractionally higher than a week ago but down sharply from the 0.97% peak seen in late April. Availability has tightened from last week's looser reading but is still far from the kind of extreme that would pressure short sellers to unwind. The lending market is not forcing anyone's hand. The ORTEX short score of 66.6 out of 100 is elevated and edging toward its recent highs, but the combination of low borrowing costs and adequate availability suggests the shorts are comfortable sitting in their positions for now.
The macro backdrop is relevant here. ETF fund flow data shows China-focused funds recorded net outflows of roughly $34 billion over the past month — the largest of any geographic category tracked — with a flow imbalance of just 28.5. That is a notably bearish structural signal from passive money, even as active options traders pile into calls. The divergence is the story: institutional flows via ETFs are pointing away from China, while the derivatives market is pricing for upside.
The tension between a record-low put/call ratio and a heavily rebuilt short book is what makes KWEB's current setup worth watching. The two camps are not reconciled. One of them is wrong, and the next meaningful catalyst — whether that is a US-China trade headline, a regulatory development out of Beijing, or a macro data print — will be the test.
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