Have Regulatory Concerns Made You More Bearish on China?

Traders looking for a bearish play on China A-shares can consider the Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD).

CHAD seeks daily investment results, before fees and expenses, of 100% of the inverse of the daily performance of the CSI 300 Index. The fund, under normal circumstances, invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse (opposite) or short exposure to the index equal to at least 80% of the fund’s net assets (plus borrowing for investment purposes).

The index is a modified free-float market capitalization weighted index comprised of the largest and most liquid stocks in the Chinese A-share market. In the past month, CHAD has risen 5%.

With its 100% exposure, CHAD moves in tandem with the index. Traders also have the option of hedging against more bullish portfolio exposure with the ETF.

“Single inverse ETFs are trading tools that allow investors to either seek profit or seek to apply a hedge for an existing portfolio position that they anticipate will experience negative returns, in the short term,” the Direxion website said.

Overall, the fund offers investors:

  • A tactical trading alternative to selling out of an existing position and creating a taxable event.
  • Less compounding, since it is less magnified compared to leveraged inverse ETFs.

CHAD Chart

A Fourth of July Drop for China

CHAD’s recent rise could be attributed to the recent drop in Chinese stocks just before the July 4 holiday. Per a Reuters article, “China’s blue-chip index closed nearly 3% lower to mark its worst day in nearly four months, as investors dumped shares across the board on growth concerns, a day after China’s Communist Party celebrated its centenary.”

“The CSI300 index fell 2.8% to 5,081.12, while the Shanghai Composite Index lost 2% to 3,518.76 points. Both the indices had their biggest one-day percentage drop since early March,” the article added further.

“The market is searching for clearer signs before turning more bullish, given macro growth hiccup and earnings recovery uncertainties ahead of upcoming results season,” Morgan Stanley said in a note.

In addition, the pandemic is still a potent catalyst that can move CHAD, especially with the emergence of the more infectious Delta variant.

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