Options traders are charging the biggest premium since March to protect against losses in Chinese companies on signs that a slowdown in the world's second-largest economy is worse than economists estimated.

The AlphaShares Chinese Volatility Index, derived from options on companies listed in Hong Kong, traded at a premium of as much as 41 percent over the Chicago Board Options Exchange Volatility Index last week, the biggest gap since March 29. The spread compares with a 10 percent discount a year ago.

The Bloomberg China-US Equity Index of the most-traded Chinese companies in New York fell 0.8 percent last week and Hong Kong's Hang Seng China Enterprises Index slid 0.7 percent.

China's foreign direct investment in July fell 8.7 percent, the lowest in two years, missing the median estimate of four economists for a 2.5 percent decline. Exports grew 1 percent last month, while the median of 32 economists was for 8 percent.

Premier Wen Jiabao said last week that downward pressure on the economy remained "relatively large."

"Nowadays, the focus of fear in the equity market seems centered on slowing growth in China," Jonathan Masse, a money manager at Baochuan Capital Management LLC, which invests in Chinese stocks, said. "Forty percent seems to be too much of a fear premium. There are over concerns about the slowdown," he said.

The spread between the China and US volatility gauges was 37 percent on August 17, up from 30 percent the previous week. The Standard & Poor's 500 Index of the biggest US shares rose 0.9 percent last week to 1,418.16, extending its gain this year to 13 percent.

(HK Edition 08/21/2012 page2)