There are valuation considerations to be made with China ETFs, notably that stocks trading on the mainland are pricier than their Hong Kong-listed counterparts. [H-Shares ETFs are big Draws]
“While the Hang Seng China Enterprises Index soared 17 percent in April, the most since October 2011, A shares in China are still trading at a 31 percent premium to stocks in Hong Kong,” according to Bloomberg.
“The premium of A-shares relative to Hong Kong based Chinese stocks could narrow if arbitragers use the new Stock Connect to enter the market and sell short the A-shares and reduce the premiums we mentioned above. And what if the government decides against further monetary easing?,” notes Direxion.
The narrowing of the A-shares/H-shares premium could increase the potency of the Direxion Daily China 3x Bull (NYSEArca: YINN), the triple-leveraged answer to the iShares China Large-Cap ETF (NYSEArca: FXI). YINN attempts to deliver triple the daily performance of the FTSE China 50 Index, FXI’s underlying benchmark. [Increasing Activity for Leveraged China ETFs]
Though it has been the second-most volatile triple-leveraged bull fund in Direxion’s lineup over the past 30 days, YINN has seen some creation activity over that period, according to Direxion data.
Direxion Daily FTSE China Bull 3X Shares
