Options Buying Surges in This Bearish China ETF

Chinese stocks started 2016 on a brutal note, but the bad news for equities in the world’s second-largest economy was good news for some bearish exchange traded funds listed in the U.S., including the Direxion Daily FTSE China Bear 3X Shares (NYSEArca: YANG).

While China is the second-largest economy in the world, many emerging market fund managers have not pulled the trigger on adding more Chinese onshore equities into their portfolios. Consequently, many retail investors remain largely underweight China and less exposed to the recent bout of volatility. Nevertheless, some investors have held some China exposure through Hong Kong-listed Chinese companies, but the H-shares stocks have not shown the same level of volatility as A-shares.

Monday’s selling in China came after data showed that Chinese factory activity declined in December, which also cast doubts over the economy’s growth outlook and the effectiveness of Beijing’s loose monetary and fiscal policies, the Wall Street Journal reports.

Additionally, exacerbating the sell-off, the Chinese yuan traded at its weakest level since 2011 after the People’s bank of China guided its currency weaker Monday

“The ferocious velocity of the first few minutes in China caught some people by surprise,” Rob Bernstone, managing director in equity trading at Credit Suisse, told the WSJ. “Whatever traders were planning to do today as far as 2016—I think those bets went out the window.”

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