How To Short China’s Stock Market With ETFs

July 09, 2015

 

Four Choices

The newest of the lot at less than one month old is the Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD). It is essentially the inverse of the aforementioned ASHR. Since debuting on June 17, CHAD has surged more than 50 percent, benefiting from the bloodbath in Chinese stocks in the period.

 

CHAD is the only inverse fund that provides exposure to China A-shares, which are mainland China stocks traded on the Shanghai or Shenzhen exchanges, and are at the heart of the recent market volatility.

 

The other 1x-inverse fund on the market, the ProShares Short FTSE China 50 (YXI) provides bearish exposure to large Chinese stocks listed in Hong Kong. While YXI has performed well recently, rising 20 percent in the past month, most of that gain came in the last three days, illustrating the difference in performance between A-shares and H-shares.

 

In addition to the basic inverse exposure provided by CHAD and YXI, there are two leveraged inverse products available for more daring speculators.

 

The ProShares UltraShort FTSE China 50 (FXP) offers 2x-leveraged-inverse exposure to the largest stocks on the Hong Kong Stock Exchange, while the Direxion Daily FTSE China Bear 3x (YANG) offers 3x-leveraged-inverse exposure to the same FTSE China 50 Index.

Over the past month, FXP is up about 53 percent, while YANG has spiked 86 percent.

 

1-Month Performance For CHAD, YXI, FXP, YANG

Source: Bloomberg
 

 

It's important to remember that all of the inverse and leveraged funds are rebalanced daily and are likely to experience performance drag over time due to volatility and compounding.

 

The Bottom Line

At the end of the day, where Chinese stocks go from here may have more to do with investor confidence and momentum than any fundamentals related to corporate earnings or the economy.

 

Playing the swings in the notoriously volatile Chinese stock market is a risky endeavor, but one that may be rewarding for those with good timing.

 

 

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