I only do passive investment on index ETFs etc. I'm quite happy with that, but sometimes I want to hedge against specific asset classes in the mix.

For example, let's say I do want to keep buying emerging economy equity index ETF, but I'm very worried that China stocks are in a bubble. If I want to keep buying the ETF, but hedge against a very sharp drop in China stock specifically (something like a 20-30% drop, for example), what is the most cost effective way of doing it?

I looked into e-warrants, but I wasn't sure if this is will be a good way.

2 Answers 2


The essence of hedging is to find an investment that performs well under the conditions that you're concerned about.

If you're concerned about China stock dropping, then find something that goes up in value if that asset class goes down. Maybe put options on a Chinese index fund, or selling short one of those funds?

Or, if you're already "in the money" on your Chinese stock position, set a stop loss: instruct your broker to sell if that stock hits X or lower. That way you keep some gains or limit your losses. That involves liquidating your position, but if you've had a nice run-up, it may be time to consider selling if you feel that the prospects are dimming.


I wonder in this case if it might be easier to look for an emerging markets fund that excludes china, and just shift into that. In years past I know there were a variety of 'Asian tiger' funds that excluded Japan for much the same reason, so these days it would not surprise me if there were similar emerging markets funds that excluded China.

I can find some inverse ETF's that basically short the emerging markets as a whole, but not one that does just china. (then again I only spent a little time looking)

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