Foreign investors are short selling China's stocks through a yuan-denominated exchange-traded fund at the highest rate in more than two years, underscoring concern that property curbs will slow the economy.

The ratio of short selling to total turnover on the iShares FTSE/Xinhua A50 China Index ETF reached 39 percent yesterday, the highest level since Feb. 19, 2008, according to data compiled by Bloomberg.

Investors are "overwhelmingly" concerned about China tightening its monetary policy and measures to curb property speculation, Jing Ulrich, JPMorgan Chase & Co.'s chairwoman for China equities and commodities, said in a Bloomberg Television interview. Europe's debt crisis and concern about contagion are also hurting investor sentiment towards stocks, she said.

Eoin Treacy's view Such a high degree of short interest may be a cause for concern if it was on the overall index, but the size of the ETF relative to the Chinese equity market is insignificant. The recently released CSI300 futures are the only method currently available to domestic Chinese investors to hedge their exposure to Chinese equities and open interest is still less than 13,000 contracts. Nevertheless, the Shanghai A-shares remain laggards.

The Index found at least short-term support today and rallied back to test the psychological 3000. Additional follow through is required to indicate demand is returning to dominance and a sustained move back above 3340 is needed to break the 9-month progression of lower rally highs.