Up Over 100%, Direxion's CWEB ETF Is Unfazed by Regulatory Hurdles

Given the way the pandemic has forced businesses to adapt to the web or face obsolescence, you could almost throw darts at the board of internet companies and come out a winner. The same could be said for Chinese equities, but will stricter regulatory measures keep down the Direxion Daily CSI China Internet Bull 2X Shares (CWEB), which is up over 100% year-to-date?

Like the United States and the European Union, China is starting to crack down on monopolistic behavior by big tech firms. For example, China’s tech giant, Alibaba, was recently hit with an investigation into violating antitrust laws.

“Like Washington, Beijing has a love-hate relationship with its tech champions,” said Kendra Schaefer, a partner at Trivium China consultancy, in a CNBC article. “On the one hand, these companies represent China’s successful modernization and growing global competitiveness. On the other hand, Beijing has long struggled with how to fit big tech into the socialist market economy.”

Yet regulatory hits haven’t stopped CWEB this year. The fund seeks daily investment results of 200% of the daily performance of the CSI Overseas China Internet Index.

The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or to ETFs that track the index. The index is designed to measure the performance of the investable universe of publicly traded China-based companies whose primary business or businesses are in the Internet and Internet-related sectors.

CWEB’s six-month chart shows there could be an opportunity brewing in CWEB’s price action. The relative strength index (RSI) is heading toward oversold levels and CWEB’s price just recently dipped below its 50-day moving average.

CWEB Chart

China Drawing a Line in the Sand

China’s government is already taking steps to curb monopolistic behavior with recent regulation. Per the CNBC article, “earlier this week, China’s bureau for regulating monopolies released draft rules that define, for the first time, what constitutes anti-competitive behavior.”

“The draft regulation by the State Administration for Market Regulation covers areas including pricing, payment methods, and use of data to target shoppers,” the article added. “It’s the most wide-sweeping attempt to regulate what Beijing sees as monopolistic behavior by the country’s tech giants that have grown significantly in the last few years.”

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