The Chinese government is injecting a dose of stimulus measures to try and revive economic growth. That should bode well for the Direxion Daily FTSE China Bull 3X ETF (YINN) if a recovery happens sooner rather than later.
Given the response from China’s highest leadership levels, a fast recovery is preferable. The second largest economy will have to do this without a heavy influx of financial aid from the government. It would have to rely on measured steps in policy adjustments.
“Chinese President Xi Jinping signaled that a sharp slowdown in growth and lingering deflationary risks won’t be tolerated, making a series of rare policy moves to boost the economy while refraining from massive stimulus,” Bloomberg reported. The report noted the government recently increased its headline deficit “to the largest in three decades and unveiled a sovereign debt package that marked a shift from its traditional model for fiscal support.”
For traders bullish on China, these steps could lead to a more pronounced move to the upside. Meantime, the country could still be more of a contrarian play. It could force traders to keep bearish hedges in their toolbox if more market selling pressure occurs.
Despite its economic struggles, China’s economy still remains relatively robust according to a recent Direxion Xchange report. While the economy has exhibited signs of slowing, the country is not experiencing a contraction.
“China’s gross domestic product (GDP)* rose 6.3% year-over-year in the second quarter, which fell short of analyst forecasts but still far outpaces the 2.6% growth in the U.S.’s GDP or the meager 0.5% growth in the EU’s GDP over the same time period (Trading Economics),” the Xchange report noted.
“That China’s economy is resilient enough to still grow in spite of the recent crises gives bullish traders reason to go against the grain and find yield by betting on China’s ability to surprise pessimistic analysts,” the report added.
Another Option Play Volatility in China
As mentioned, if China can pull out of its economic growth woes, traders can play the bullish card with YINN. Per its baseline fund description, YINN tracks the FTSE China 50 Index. That index comprises the 50 largest and most liquid public Chinese companies currently trading on the Hong Kong Stock Exchange.
Additionally, if investor sentiment remains bearish, then traders can use the Direxion Daily FTSE China Bear 3X Shares (YANG). The opposite of YINN, YANG seeks daily investment results equal to 300% of the inverse of the daily performance of the FTSE China 50 Index.
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