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Maybe the Best China ETF to buy Right Now


The Shanghai Composite (SSEC), the benchmark index for stocks trading on mainland China, fell 13.3% this week. Not only does that firmly fit the definition of a correction, it was good for the eighth-worst weekly decline in the benchmark’s history.

Not surprisingly, U.S.-listed exchange traded funds holding China A-shares, which are among the world’s top performers this year, are getting hammered. Losses for the non-leveraged A-shares ETFs trading in New York range from 4.7% for the CSOP FTSE China A50 ETF (AFTY) to 7.6% for the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (ASHS) .

The Market Vectors ChinaAMC SME-ChiNext ETF (CNXT) is off 6.7%. CNXT and ASHS have more than doubled this year, making the pair the two best-performing non-leveraged ETFs. CNXT and ASHS are off an average of 12.7% this week. As for the one leveraged A-shares ETF, it is getting drubbed, too. On volume that is nearly triple the daily average, the Direxion 2x Daily CSI 300 China A Share ETF (CHAU) , which debuted two months ago, is lower by 10.4% and is Friday’s worst-performing ETF on a percentage basis. [Upping the Ante With China ETFs]

All of that is good news for the Direxion Daily CSI 300 China A Share Bear 1x Shares (CHAD) . CHAD debuted on Wednesday. Coincidence or not, that is enviable timing for a new ETF. With Friday’s A-shares bloodbath, CHAD is up 5.2%, making it the day’s second-best ETF. With bearish sentiment building against A-shares, CHAD’s near-term upside potential is significant.

“Short interest in the largest exchange-traded fund tracking yuan-denominated equities rose to a record 16 percent of shares outstanding Wednesday as bets on a price drop almost doubled from a month ago, according to data compiled by Markit and Bloomberg. Traders pulled $258 million from the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) last week, the most since the fund was created in 2013,” according to Bloomberg.

CHAD is an inverse though not leveraged ETF that seeks to deliver the daily inverse returns of the CSI 300 Index, the underlying benchmark for ASHR, the largest U.S.-listed A-shares ETF. With A-shares valuations surging and investors growing wary of that, CHAD could be the right way to play mainland China stocks in the coming weeks.

“On the surface, the debut of a bearish China ETF seems like a risky proposition. After all, the top four ETFs in terms of year-to-date percentage gains — and five of the top six — are Chinese shares funds. But as this week has shown, mainland Chinese stocks can swiftly correct, and some investors are not waiting around for those declines to worsen. The Hang Seng China AH Premium Index recently traded at its highest levels since 2009,” reports TheStreet.com.

CHAD Index Sector Weights


ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.