New ETFs Take a Bold Approach to China A-Shares

Previously hard to access in the U.S., Chinese A-shares equities, the stocks traded on the mainland exchanges in Shanghai and Shenzhen, have become increasingly popular with investors looking for tactical exposure to Chinese stocks.

Exchange traded funds have made A-shares more accessible to U.S. investors and those investors will soon be able to add leverage to their A-shares bets or hedge those bets with an inverse ETF.

On Thursday, Direxion, the second-largest issuer of inverse and leveraged ETFs, will introduce the Direxion 2x Daily CSI 300 China A Share ETF (NYSEArca: CHAU) and the Direxion -1x Daily CSI 300 China A Share ETF (NYSEArca: CHAD). [Direxion Plans Leveraged A-Shares ETF]

CHAD, the inverse A-shares ETF, will try to reflect the daily single inverse, or -100%, performance of the CSI 300 Index. CHAU will seek to deliver twice the daily performance of that index. The CSI 300 Index is the underlying benchmark for the $1.2 billion Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR). ASHR, which debuted in November 2013, is the largest U.S.-listed China A-shares ETF.

However, unlike ASHR, CHAU does not satisfy the criteria to qualify as a RQFII or QFII, so the proposed fund will invest a majority of assets in other investment companies, including ETFs, that replicate the undelrying index, along with swaps, futures contracts and other derivative instruments to replicate the inverse exposure to CSI 300 Index.