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Profit From China Sell-Off Via These Inverse ETFs - ETF News And Commentary

Hard times are refusing to leave the Chinese investing world. News about the Chinese economy and its stock market has been hitting headlines for the wrong reasons so far this year. It was once a soaring market which took the valuation to such a scale that occasional pull-backs now look normal and warranted. This was more so given the languishing trend of its economic data.

Something of this sort happened yesterday when the Chinese markets took the deepest single-day plunge since 2007. Doubts over the sustainability of the Chinese government funds’ ability to calm down a maddening market led to a pullback in market support. Meanwhile, industrial profits in China dropped 0.3% in June following two solid months, which caused a panic-induced sell-off.

As a result, the Shanghai Composite Index fell 8.5% and the Shenzhen index lost 7%. This year, Chinese equities have seen frequent crashes. To arrest this exasperating sell-off, the Chinese government stopped new companies from selling shares to the public and introduced a fund to be used for purchasing shares earlier this month. Investors having an over 5% stake, executives and directors have been forbidden to dump their shares for six months, per Chinese securities regulators.

However, the latest burst indicates that investors have marked off government intervention and dumped stocks on deepening economic crisis and overvaluation fears. Given heightened volatility and the still-high valuation in the China equities ETF space, the appeal of the China ETFs may dull for the edgy investors. Even after recurrent sell-offs, P/E (ttm) of Market Vectors ChinaAMC SME-ChiNext ETF (CNXT) stands at 40 times against 18 times P/E (ttm) of the broader U.S. market ETF SPY.

As a result, investors who are bearish on China right now may want to consider a near-term short on this market. Fortunately, there are many ETF options for this. Below, we highlight a few choices and some of the key differences between each (read: What is in Store for Industrial Metal ETFs After China Rout?):

Daily China Bear 3x Shares (YANG)

The fund looks to track the 300% inverse (or opposite) performance of the FTSE China 25 Index. The index consists of 25 of the largest and most liquid companies available to international investors traded on the Hong Kong Stock Exchange. Yang has amassed about $82 million in assets so far and charges 95 bps in fees. The fund was 11.8% up on July 27 on three times higher volume. The fund added over 1.4% after hours and advanced over 27% in the last one month (as of July 27, 2015).

Daily CSI 300 China A Share Bear 1x Shares (CHAD)

Having debuted in June 2015, the product seeks daily investment results of 100% of the inverse of the performance of the CSI 300 Index. The index is market cap weighted and comprises the largest and most liquid stocks in the Chinese A-share market (see all Inverse Equity ETFs here).

Barely a few days old, the fund has already amassed over $219 million in assets. The fund charges 95 bps in fees and was up over 8.8% on July 27 though it shed about over 0.9% after hours. Over the last one month, the fund added over 3%.
Short FTSE/Xinhua China (YXI)

The fund seeks daily investment results corresponding to the opposite daily performance of the FTSE China 50 Index. The index includes the 50 largest and most liquid Chinese stocks listed on the Hong Kong Stock Exchange. YXI has accumulated about $11.8 million in assets and charges 95 bps in fees. The fund was up 3.8% yesterday. The product was up over 10% in the last one month (read: Inside The Crash in China ETFs).

Ultrashort FTSE/Xinhua China (FXP)

The fund looks to track two times the inverse exposure of the daily performance of the FTSE China 50 Index. It has gathered over $65 million in assets and charges 95 bps fees. The product was up more than 7.8% on July 27 on more than two times the regular volume. The fund added over 19.5% in the last one month.

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MKT VEC-CHINAMC (CNXT): ETF Research Reports
 
SPDR-SP 500 TR (SPY): ETF Research Reports
 
DIR-D F CHIN BR (YANG): ETF Research Reports
 
DIRX-CSI CASB1X (CHAD): ETF Research Reports
 
PRO-SH FT CH25 (YXI): ETF Research Reports
 
PRO-ULS FT CH25 (FXP): ETF Research Reports
 
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