China’s onshore equity market has been one of the world’s hottest this year. So much so that even with last week’s more than 13% decline by the Shanghai Composite, enough to put the benchmark in correction territory, four of this year’s top 10 ETFs, including the top two, are A-shares funds.
Increased volatility has prompted some investors to pull money from A-shares ETFs, but not a pair of recent entrants to the A-shares ETF fray are pulling in assets at a prodigious pace, indicating some traders have split view regarding what the near-term holds for mainland Chinese equities.
Last Friday, even after the Shanghai Composite plunged during that day’s Asian session, traders eagerly sought ways for preparing for an A-shares rebound. They did so with gusto, creating 600,000 new shares in the Direxion 2x Daily CSI 300 China A Share ETF (NYSEArca: CHAU), the first leveraged A-shares ETF to list in the U.S. [First Leveraged A-Shares ETF Debuts]
CHAU, which Direxion introduced last month, attempts to deliver twice the daily performance of the CSI 300 Index, the underlying benchmark for the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR), the largest U.S-listed A-shares ETF.
Last Friday’s creation activity in CHAU means that after barely more than two months of trading, the double-leveraged ETF has 1.4 million shares outstanding, equivalent to nearly $64.2 million in assets under management based on Monday’s closing price of $45.85.
Non-leveraged A-shares ETFs rose Monday, though the gains did not dent last week’s losses and that might be why some traders are taking a different approach with the Direxion Daily CSI 300 China A Share Bear 1x Shares (NYSEArca: CHAD). CHAD debuted on June 17, enviable timing for an ETF designed to profit from A-shares declines.
“China A-shares account for roughly two-thirds of the market capitalization of Chinese stocks, and are listed on the Shanghai and Shenzhen Stock Exchanges. Since most foreign investors cannot purchase China A-shares, investors in most existing China ETFs lack exposure to the majority of Chinese companies,” according to Direxion. “Since July 2014 China’s growth has drifted steadily lower, yet the A-shares have soared in value. Some think this means China’s markets may veer into bubble territory.”
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]
Granted, CHAD’s operating history is limited to say the least, but the ETF was active yesterday with 10 new creations, taking its shares outstanding tally to 600,000 from 100,000. Based on Monday’s close of $42.20, that means CHAD has needed just four days of trading to eclipse $25 million in assets under management.
Direxion 2x Daily CSI 300 China A Share ETF
