Exchange-traded funds (ETFs) focused on China have seen a surge in bullish options activity as optimism grows around the country’s artificial intelligence (AI) sector. The emergence of AI startup DeepSeek, along with softened concerns over tariffs, has driven increased interest in funds like the KraneShares CSI China Internet ETF (KWEB) and the iShares Trust-China Large-Cap ETF (FXI).
Recent options data shows that traders are heavily favoring call options on these ETFs. The one-month average daily trading volume for KWEB call options is nearly five times higher than put options, marking one of the most bullish stances in the past four years. FXI has also seen strong demand, with a significant skew in favor of call options, according to Cboe data.
AI Sector Drives Market Optimism
Chinese stocks have rallied in recent weeks, driven by growing enthusiasm for AI-related companies. DeepSeek’s latest AI assistant, unveiled in late January, has captured investor attention by demonstrating capabilities that could challenge U.S. dominance in the field. Since its launch, FXI shares have climbed about 12%, while KWEB has jumped 14%.
“There’s been a lot of interest in China upside. That’s definitely been a big theme,” said Alex Kosoglyadov, managing director for equity derivatives at Nomura.
Trade Policy Eases Market Fears
Beyond AI, some of the optimism surrounding Chinese equities stems from a perceived easing in U.S.-China trade tensions. While former U.S. President Donald Trump initially proposed a 60% tariff on Chinese imports, the actual implemented rate was just 10%.
Hedge funds are increasingly betting on Chinese stocks, anticipating that a diplomatic resolution or global opposition to restrictive trade policies could lead to further gains.
“I think people are ultimately optimistic because you’ve had a much softer tone on China from the Trump administration, if you compare what we heard during the campaign,” Kosoglyadov added.