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Treading Carefully With China ETFs

Chinese stocks and exchange traded funds such as the iShares China Large-Cap ETF (FXI) , the largest China-related ETF trading in the U.S., have been laggards during most of this year’s emerging markets renaissance. However, that scenario has recently been changing for the better with FXI soaring more than 15% over the past two months.

On Monday, China ETFs rallied following some important news. Chinese equities jumped Monday on renewed speculation for the launch of the Shenzhen-Hong Kong Stock Connect by the end of the year, reports Kenan Machado for the Wall Street Journal. The Hong Kong Economic Journal said a formal announcement could be revealed as soon as this week and that it would be officially launched in December.

SEE MORE: Are China ETFs Ready to Rally?

However, following FXI’s impressive rally, some traders are concerned the large-cap China ETF could be primed for a pullback.

FXI’s “14-day relative strength index broke past 70 amid growing signs that the nation’s economic slowdown is stabilizing. Shares in the fund sold for as much as $37.99 Monday as a report in the Hong Kong Economic Journal said the start date for an exchange link between Shenzhen and Hong Kong may be announced as soon as this week,” reports Sunny Oh for Bloomberg.

China ETF traders who are wary of ongoing weakness in the Chinese markets can also look to inverse or bearish options to hedge their positions. For instance, the Direxion Daily FTSE China Bear 3X Shares (YANG) takes three times the inverse or -300% daily performance of Chinese stocks. Additionally, the Direxion Daily CSI 300 China A Share Bear 1x Shares (CHAD) takes the inverse exposure to Chinese A-shares.

SEE MORE: 15 Cheap Emerging Market ETFs

The ProShares UltraShort FTSE China 50 (FXP) attempts to deliver double the daily inverse returns of the same index FXI follows.

Over 260 U.S.-listed ETFs feature some exposure to China with marquee names including the iShares China Large-Cap ETF, which is the largest China-related ETF that tracks Chinese companies listed on the Hong Kong stock exchange. H-shares, or the Chinese stocks trading in Hong Kong are some of the least expensive stocks in the world and FXI has a price-to-earnings ratio below that of the MSCI Emerging Markets Index.

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

iShares China Large-Cap ETF


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.