China had a forgettable 2021, but traders are eyeing the second-largest economy to start creating its comeback story in 2022, which could provide an opportune time to buy the dip.

While COVID-19 has been affecting all economies across the globe, China had other problems, namely real estate. It’s one of the main reasons that the MSCI China index is down 26% for the past year.

“The property sector in China has been under significant pressure over recent months,” a Direxion Invesments “the Xchange” blog post notes. “While China Evergrande Group remains the most well-known other developers have exhibited stress with reports of hidden debts and inter-company deals. S&P declared Evergrande in default on December 17, while Fitch downgraded its credit rating. Fitch stripped another developer, Shimao Group, lost its investment grade rating as well.”

“Most recently, residential property sales fell 20% from a year earlier,” the blog says further. “At the same time, retail sales slumped indicating weakness in the economy. Some are speculating the People’s Bank of China (PBOC) will continue to ease policy further to help after they recently cut reserve requirements for banks.”^MSCN Chart

Both Sides of the Coin

What goes down must eventually come up, but when? Traders looking for a China comeback have options, but they can keep a bearish tool in their back pocket when necessary.

“US-listed Chinese companies remain under pressure as well, especially after Didi Global announced it is delisting from the New York Stock Exchange only five months after its listing,” the blog post says. “Regardless, traders are getting comfortable stepping into Chinese names and preparing for a bounce back.”

“If you are looking for Chinese stocks to recover in the short-term, and you are comfortable with uncertainty, look to Daily Chinese Bull funds,” the post adds. “However, if you believe China may continue to see downside, Daily Chinese Bear funds may be worth a look.”

A bounce-back play could be had in the Direxion Daily FTSE China Bull 3X ETF (YINN). The fund seeks results that equal 300% of the daily performance of the FTSE China 50 Index, which consists of the 50 largest and most liquid public Chinese companies currently trading on the Stock Exchange of Hong Kong.

Should more bearishness continue to put downward pressure on Chinese stocks, traders can use the Daily FTSE China Bear 3X Shares (YANG). YANG takes the opposite side of YINN, seeking daily investment results equal to 300% of the inverse (or opposite) of the daily performance of the FTSE China 50 Index.

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