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Traders Are Missing Out On The Right China ETFs

ETF Professor

China, the world's second-largest economy, saw $1 trillion in capital outflows, a data point that will be widely cited as one of the reasons for the tumble in Chinese stocks during Tuesday's Asian session. The Shanghai Composite, the benchmark mainland equity gauge, bled 6.4 percent with the CSI 300 Index losing 6 percent.

The CSI 300 Index is the benchmark tracked by some New York-listed exchange traded funds, including the Direxion Daily CSI 300 China A Share Bear 1X Shares (NYSE: CHAD). CHAD, as its name implies, attempts to deliver the daily inverse performance of the CSI Index on a percent-for-percent basis.

"China's gross domestic product growth is seen slowing further to 6.5 percent this year, from last year's 6.9 percent. Outflows jumped in December, with the estimated 2015 total reaching a record $1 trillion, more than seven times higher than the whole of 2014 based on Bloomberg Intelligence data dating back to 2006," according to Bloomberg.

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That is to say these are the times for CHAD. The ETF is up about 16.7 percent over the past month while the largest New York-listed A-shares ETF is down slightly more than 19 percent over the same period.

Intervention

As A-shares have tumbled in recent months, investors have endured situations such as days where half the stocks trading on the mainland where halted by Chinese regulators and ineffective market interventions, a tool Beijing has since told market participants that they should not become too dependent on.

However, traders have recently been mistakenly reducing exposure to CHAD. The ETF has lost $49 million this month. Even more puzzling are the $21.2 million in January outflows from the Direxion Daily FTSE China Bear 3X Shares (NYSE: YANG), an ETF that is essentially the triple-leveraged bearish answer to the iShares China Large-Cap (NYSE: FXI), the largest China ETF trading in the U.S.

Of course, some of the outflows from YANG could be attributable to profit-taking. Entering Monday, the fund was the third-best performer in Direxion's stable of leveraged bearish ETFs with a gain of 43.3 percent. With Monday's gain of 7.3 percent on heavy volume, YANG is now up nearly 52 percent just this month.

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