BEING bearish on China may not turn out to be wise, but it does require some ingenuity. Shorting domestic stocks is illegal. Futures and options markets for equities either do not exist locally or barely trade. It is possible to buy credit-default swaps (CDSs), a form of insurance against default, on China's sovereign debt, but few think that would really go belly-up anyway. A pair of widely circulated reports on how to hedge a downturn, written in April by Goldman Sachs (stamped “highly confidential”) and Morgan Stanley respectively, spell out some of the alternatives for investors. In each, the underlying idea is similar: if shorting China is impossible, find things tied to China.

In Morgan Stanley's view, that means starting with various financial assets—shares, credit instruments, and currencies—in South Korea and Australia (see chart), the two countries with the strongest connections to China after adjusting for re-exports. Both places offer numerous financial products, such as exchange-traded funds linked to indices, that can be shorted. The report also cites three commodities that are particularly tied to China's growth: copper, above all; then soyabeans; and oil.

In its hedging scenarios, Goldman's report concentrates on some different products. It looks at the value of buying CDSs on Hutchison Whampoa, a telecoms company in Hong Kong with deep ties to China; an index of Asian (excluding Japanese) CDSs; and a combined option structured to benefit from a decline in the Australian dollar, Goldman's own commodities index and the Hang Seng China Enterprise Index, comprising Chinese companies listed on the Hong Kong stock exchange.

Such ideas can be augmented, of course, by adding other China-focused companies trading in overseas markets, or certain commodities, such as molybdenum, which is used in steel, or nickel. Deciding which to go for partly depends on costs, such as transaction fees, and market liquidity.

Data on the popularity of such bets are not widely available. But anecdotal evidence suggests plenty of people are bearish. It is a “crowded trade”, says one hedge-fund manager. As a result, when the market turns upward a “short squeeze” can develop as traders seek to cover their positions by scrambling to buy back shares. That may have happened this week when a rumoured shift in the government's position on taxing property transactions sent shares in developers soaring. And therein lies the greatest risk of betting against China. It may do well.