Photographer: Andrew Harrer/Bloomberg

U.S. Short Sellers Missed Out on Biggest China Slump This Year

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The worst selloff in Chinese shares since November took U.S. traders by surprise, with short interest in one of the biggest exchange-traded funds tracking the country’s stocks near a two-year low.

The MSCI China Index has tumbled 3.6 percent over the past three days as concern over U.S.-North Korea tensions increased, Netease Inc. reported disappointing online games revenue and China’s online watchdog started an investigation into news services run by companies including stock-market darling Tencent Holdings Ltd.

Investors may have been lulled by Chinese stocks’ Asia-leading gains this year, losing their skepticism about a market that plunged more than 40 percent just two years ago. Tech giant Tencent, which fell as much as 5 percent on Friday, is still up 66 percent this year.

But the fun may not be over yet; there’s still room for more profit taking given China is North Korea’s key ally and valuations remain rich: the MSCI China trades at 16.7 times earnings, near a seven-year high.

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