No Hanging CHAD: Inverse A-Shares Already Shining ETF

By not fault of their own, some new exchange traded funds simply do not have the benefit of good timing. Then there is the newly minted Direxion Daily CSI 300 China A Share Bear 1x Shares (NYSEArca: CHAD), an ETF that can easily be deemed right for the times.

CHAD, the first inverse A-shares ETF to list in the U.S., debuted on June 17 in the midst of an epic and ongoing retreat by mainland Chinese stocks. The Shanghai Composite is down more than 12% since June 12. The benchmark mainland Chinese index slipped another 3.5% during Thursday’s Asian session.

CHAD is an inverse though not leveraged ETF that seeks to deliver the daily inverse returns of the CSI 300 Index. With A-shares valuations surging and investors growing wary of that, CHAD could be the right way to play mainland China stocks in the coming weeks. [The Right China ETF for the Moment]

The ETF surged nearly 5% on Thursday, just a few days after robust creation activity in the fund took its shares outstanding total to 600,000 from 100,000. With A-shares slumping, more big creations could be on the way for CHAD. [Traders Rush to Inverse, Leveraged A-Shares ETFs]

“Much of the volume in China is from individual day traders with little understanding of what they are buying. Chinese investors opened nearly 5 million trading accounts in March. According to Southwestern University of Finance and Economics in China, over 60% of China’s new investors last year did not complete high school. Some say there are few alternatives for local Chinese to invest. Since real estate and wealth management investments have soured, investors have returned to the stock market. Adding to the bear argument is that the leverage in the category is high. Outstanding loans to Chinese stock investors increased 300% to a high of $269 billion ($1.67 trillion yuan) as of last April,” according to a new Direxion research note.