That is a very possible scenario for who is doing the shorting. There is one other macro trend that I think could be profound for 2011 as well. A lot of people have been scratching their head at the macro CGS valuations, and I think one possible explanation is that US small and mid caps just had a year to remember. My 401(k) US small cap and mid cap funds all had 20-28% returns. I think it is safe to assume that many institutions are going to keep their money close to home, where there is a lower perceived risk, especially when US stocks are on fire.
Think about how much people were making on Apple, NetFlix and Amazon. With household names providing lucrative returns, why would fund managers move money to China?
I think that once the US stocks start showing signs of losing steam, we are going to see a large influx of capital that is seeking better risk/reward opportunities in CGS. In fact, I think that time is fast approaching.
