JPMorgan suggests using 'cheap options' to bet on China stocks

(Bloomberg) - JPMorgan Chase & Co.

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Strategists at brokerages including Tony SK Lee said in a report released Monday that they are leaning toward buying options on the Big Briar Index to prepare for a potential rebound in China's stock market. Specific recommendations include buying narrow call spreads on H-shares or the FTSE China A50 Index, as well as buying call options on Chinese stocks, provided the dollar doesn't fall against China's offshore renminbi.

After China's official manufacturing data hit a one-year high, investors have become more optimistic about the world's second-largest economy. Strong manufacturing, a resumption of foreign capital inflows and the Chinese government's determination to rescue the market have helped the CSI 300 Index rebound 11% from its February lows.

However, given the challenges facing China's economic growth outlook, "it is too early to re-enter the market on improved economic activity alone," the strategists wrote. They favor large-cap stocks backed by corporate buybacks and Chinese state-backed funds.

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