Right, so the yuan traded like a safe haven this week. We’ve established that. A high-yielding safe haven backed not only by a sizable trade surplus, but also by a central bank that at least for the time being, is still leaning in the direction of a stronger currency to deter capital flight as opposed to a weaker currency to buoy exports.

Is the yuan rally versus the dollar overdone? Probably. And Friday’s weaker-than-expected fixing suggests the PBoC is well aware that July’s export/import numbers (“he’s an importer/exporter, ok?“) were a disappointment.

But for the time being, yuan strength is one of the the markets big stories.

Given that, the juxtaposition between the outlook for the yuan and the near-term prospects for the won is pretty interesting. Indeed, CNY/KRW (who’s afraid of the “yuan-won”?) appears to be a new proxy for market angst:

You can see the divergence of fortunes in China and South Korea CDS. Here’a visual of the two converging (note that China CDS is widening too, just not as fast as Korea’s):

And here’s the spread:

Of course none of this means Chinese equities are immune. And indeed, Thursday was the worst day for the SHCOMP since December 12:

Meanwhile, the China ETF VIX spiked the most since January 7, 2016:

Now you would think, given the rather “unpleasant” experience investors lived through in the summer of 2015 when Chinese stocks collapsed under the weight of a margin-fueled bubble driven by millions of bored housewives and security guards-turned day traders, that some folks made some money this week betting against the ETF, right? Wrong.

Because as Bloomberg notes, short interest on the ETF was sitting at a two-year low (so the lowest since the 2015 crash):

On the “bright” side (for the bears), Bloomberg goes on to say this:

But the fun may not be over yet; there’s still room for more profit taking given China is North Korea’s key ally and valuations remain rich: the MSCI China trades at 16.7 times earnings, near a seven-year high.

But proceed with caution – because lurking in the background is Beijing’s plunge protection team.