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Hong Kong’s Most Popular ETF Is Short the Whole Stock Market

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(Bloomberg) — A fund that makes money when Hong Kong stocks tumble has suddenly garnered a whole lot of interest.

The CSOP Hang Seng Index Daily Inverse Product has attracted some $136 million worth of cash in 2018, the biggest inflows for any fund trading on the city’s exchange, data compiled by Bloomberg show. That’s more than doubled its assets, bucking the trend in a year that’s seen investors yank $6.5 billion from Hong Kong-listed exchange traded funds.

Used as a tool to shelter against declines in the Hang Seng Index, the fund had largely been ignored since its launch 14 months ago as the benchmark staged its biggest rally in eight years. Investors are now rushing to hedge as stocks struggle to recover from losses that at one point had wiped out more than $700 billion from Hong Kong’s equity market.

“People are getting increasingly confused about where the market is going and what the best way to position their portfolios is,” said Melody He, who helps oversee CSOP Asset Management Ltd.’s ETF business in Hong Kong. “With all the concerns on U.S.-China trade, talk about North Korea and potential market shocks from Fed hikes, investors are feeling insecure.”

There were tentative signs of a rebound last week, with the Hang Seng Index closing above the 31,000 level for the first time since March. The gauge’s 4 percent rally was its best weekly performance in almost three months, and it rose another 1.1 percent on Monday for a sixth consecutive day of gains.

Still, that January record is proving elusive: the Hong Kong gauge is about 5 percent below its all-time high.

To contact the reporter on this story: Emma Dai in Hong Kong at edai8@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Sofia Horta e Costa, Philip Glamann

©2018 Bloomberg L.P.

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