Editor’s note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don’t have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
When it comes to the economy and markets, behavioral psychology must be considered. Even though China has lifted its zero-Covid policy, there are mounting concerns that the much-anticipated economic rebounded is not materializing accordingly. This could come with serious ramifications to the country’s equity market.
Public Confidence Waning
There appears to be a lingering anxiety permeating within China’s economy that’s preventing its total recovery post-Covid lockdowns. Both business owners and consumers have erred on the side of caution when it comes to spending and investing, which is hardly an environment conducive for growth.
This lack of confidence is reflected in the performance of the Chinese stock market, which has been trending lower since peaking back in January. There is nuance to this economic sentiment, however. Savings rates are still at elevated levels, but credit demand is shrinking. China also has a record-high youth unemployment rate, which is another headwind for consumption levels.
For traders that think there’s further pain ahead in China’s economy and stock market, Direxion’s Daily FTSE China Bear 3X Shares (Ticker: YANG), which seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite), of the FTSE China 50 Index*, could provide a unique opportunity.
Below is a daily chart of YANG as of June 23, 2023.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance please visit us at www.direxion.com.
Will Stimulus Alone be Sufficient?
Historically, the Chinese government’s response to economic slowdown has centered around stimulus packages. Real estate has often been the focus of such stimulus packages, considering that it accounts for approximately 70% of Chinese investment.
In fact, it recently surfaced that the State Council was looking to implement further measures to support real estate prices, which include a series of rate cuts. China optimists are still looking for additional stimulus measures to help buoy its markets and economy.
The next People’s Bank of China (PBOC) meeting is on July 19. Rates are currently at 3.55%, so if we see a cut that exceeds expectations, it could lead to a solid rebound in Chinese equities.
Traders looking to bet on further stimulus in China may consider Direxion’s Daily FTSE China Bull 3X Shares (Ticker: YINN), which seeks daily investment results, before fees and expenses, of 300% of the performance of the FTSE China 50 Index.
Below is a daily chart of YINN as of June 23, 2023.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance visit us at www.direxion.com.
Originally published by Direxion on July 6, 2023.
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An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
The FTSE China 50 Index (TXIN0UNU) consists of the 50 largest and most liquid public Chinese companies currently trading on the Hong Kong Stock Exchange as determined by FTSE/Russell. Constituents in the Index are weighted based on total market value, so that companies with larger total market values will generally have a greater weight in the Index. Index constituents are screened for liquidity and weightings and are capped to limit the concentration of any one stock in the Index. One cannot directly invest in an index.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs) Risk, Cash Transaction Risk, Tax Risk, and risks specific to Chinese securities, including Chinese Government Risk, Chinese Markets Risk, Chinese Currency Risk, and Hong Kong Securities Risk. The Chinese economy is generally considered an emerging market and can be significantly affected by economic and political conditions and policy in China and surrounding Asian countries. Securities from issuers in emerging markets face the potential for greater market volatility, lower trading volume, higher levels of inflation, political and economic instability, greater risk of market shutdown and more government limitations on foreign investments than typically found in more developed markets. Additional risks include, for the Direxion Daily FTSE China Bull 3X Shares, Daily Index Correlation Risk and for the Direxion Daily FTSE China Bear 3X Shares, Daily Inverse Index Correlation Risk, and risks related to Shorting. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
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