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Best ETFs to Hedge Further Weakness in China

This article was originally published on ETFTrends.com.

The escalating trade-war rhetoric is dragging on Chinese markets. Investors who believe the increasing tariffs will weigh on further growth in China's economy can look to a number of bearish exchange traded fund plays to capitalize on this emerging country's misfortunes.

The iShares China Large-Cap ETF (FXI) , the largest China-related ETF, continued to decline 2.0% Thursday after falling off 7.9% over the past three months.

“Global stocks were pressurized by the Asian markets, as most indices were down more than 1 per cent due to worries about the trade war and the slowdown of China’s economy leading to a possible credit crunch, as evidenced by recent data,” Louis Wong, dealings director at Philip Securities Hong Kong, told South China Morning Post. “Yesterday’s rebound was very short-lived, but due to lingering investor concerns over the trade war, I see no sustainable rebound in the short term.”

China's Yuan Currency Depreciates Against U.S. Dollar

Pressuring Chinese markets, China's yuan currency has depreciated against the U.S. dollar for a sixth consecutive session Thursday, to 6.5088 yuan per dollar, or close to this year's low of 6.5449 in early January.

“The worry of a trade war is to blame for the drop of the yuan. The US has threatened to impose the tariffs on Chinese exports, which has led to worries about the outlook of the yuan,” Ben Kwong Man-bun, director of KGI Asia, told the SCMP.

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With no real end to the trade spate in sight, investors may continue to capitalize off the weakness in Chinese markets or at least hedge against further risks through bearish or inverse ETFs.

For instance, the Direxion Daily CSI 300 China A Share Bear 1x Shares (CHAD) was the first inverse A-shares ETF to trade in the U.S. The ETF is designed to deliver the daily inverse performance of the CSI 300 Index.

The ProShares Short FTSEChina 50 (YXI) takes the simple inverse or -100% daily performance of the FTSE China 50 Index, the same underlying benchmark for FXI. The ProShares UltraShort FTSE China 50 (FXP) attempts to deliver double the daily inverse or -200% returns of the same index. More aggressive traders may look to something like the Direxion Daily FTSE China Bear 3X Shares (YANG), which takes three times the inverse or -300% daily performance of the FTSE China 50 Index.

For more information on the Chinese markets, visit our China category.