As regulators scrutinize Chinese equities market and brokerages, investors sold off China A-shares, pushing country-related exchange traded funds below their trend lines.
On Friday, the iShares China Large-Cap ETF (NYSEArca: FXI), the largest China-related ETF that tracks Chinese companies listed on the Hong Kong stock exchange, dipped 2.8% and the SPDR S&P China ETF (NYSEArca: GXC) fell 2.2%. Both funds dipped below their 50-day exponential moving averages.
China A-shares ETFs that track mainland Chinese stocks traded in Shanghai and Shenzhen plunged Friday, with the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR) down 7.2%, KraneShares Bosera MSCI China A ETF (NYSEArca: KBA) down 6.1%and Market Vectors ChinaAMC A-Share ETF (NYSEArca: PEK) 7.2% lower. The China A-shares ETFs have fallen back below their long-term 200-day EMA and their short-term 50-day EMA.
ETF investors following the trend lines would have originally trimmed the China A-shares ETFs exposure back around July when the funds dipped below their trends. While Chinese equities have made a decent run over the past few months off the August lows, investors should keep in mind that China, an emerging market, still exhibits large bouts of volatility.
Meanwhile, the Direxion Daily CSI 300 China A Share Bear 1x Shares (NYSEArca: CHAD), which takes the inverse exposure to Chinese A-shares, was among the best performers on Friday, rising 6.5%.
The Shanghai Composite closed 5.5% lower Friday after rallying over 20% since its August lows, reports Jenny Cosgrave for CNBC. [ETF Investors Surprising Reaction To China’s Rally]
“By coincidence the brokerage crackdown and IPO restart comes when the index is at a technical resistance level, so people used it as an excuse to sell today,” a hedge fund manager in Shanghai told the Financial Times.
Chinese markets plunged on reports that the China Securities and Exchange Commission launched investigations into firms on short selling and speculation, which contributed to summer sell-off. For instance, Citic was cited for misreporting the size of its derivatives and senior executives were accused of insider trading.
“Emerging markets have taken some time to catch up and I think today’s price action, although the immediate catalyst might have been the crackdown from the authorities on margin trading, this has been a little while coming, because industrial profits have been very poor,” global head of emerging markets cross asset strategy at UBS, Bhanu Baweja, told CNBC.
Deutsche X-trackers Harvest CSI 300 China A-Shares ETF
For more information on China, visit our China category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.