Investors seeking to diversify beyond crowded AI trades in Korea and Japan are increasingly turning to Chinese equity derivatives, with trading desks at Barclays and UBS reporting rising client demand for bullish options and swap contracts tied to China's CSI indexes. Strategists recommend derivative trades to position for gains, particularly in mid- and small-cap stocks, citing capital-market reforms, tech self-reliance, and improving earnings in hardware sectors. UBS highlighted the CSI 500 as an alternative AI bet, while the CSI 1000, despite a recent slump, remains 16% below its May high, and implied volatility has fallen, making options more attractive. Bank of America's Lars Naeckter recommends call spreads on the CSI 1000, noting that options are ideal when pricing is favorable and a catalyst may emerge. Barclays sees interest in call spreads on onshore indexes and outperformance trades linked to CSI 300 and CSI 500, while UBS noted the largest weekly derivatives flow in Asia came from bullish China bets. Tech's growing weight in Chinese indexes, now the top sector in the CSI 300, is attracting investors, and in the US, a trader bought bullish calls on the KraneShares CSI China Internet Fund. BNP Paribas's Jason Lui emphasizes that China offers a different AI exposure due to its own ecosystem, providing natural diversification with contained volatility.
UBS Group AGUBS reports rising client demand for bullish China derivatives, indicating business activity.
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