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Worried About China? Bet on These Bear ETFs

The recent spate of economic data out of China reconfirmed that the world’s second largest economy might be moving into a darker tunnel. Both factory output and fixed investment data were so disappointing that analysts now believe that China’s economic growth may slip below 7% for the first time since the global economic crisis, marking the slowest expansion in a quarter of a century.
 
According to the National Bureau of Statistics, China’s factory output grew 6.1% year over year in August, below the market expectation of 6.4%. Meanwhile, growth in fixed-asset investment that follows the pulse of the economy weakened to 10.9% for the first eight months of the year – the slowest pace in nearly 15 years – from 11.2% in the January-July period.
 
Notably, growth in real estate investment decelerated to 3.5% for the first eight months of the year, the lowest since early 2009, compared with 4.3% in the first seven months of the year.
 
The bearish trend in data caused both the Shanghai Composite Index and Shanghai Shenzhen CSI 300 Index to continue to trade in the red, registering a 3.5% and 3.9% fall, respectively in today’s session.
 
So far, the Chinese government’s efforts to revive the economy have gone in vain. The central bank of China has reduced interest rates five times since last November and relaxed banks’ reserve requirements several times. The government is also trying to boost infrastructure spending to spur growth.
 
On Aug 11, the Chinese policy makers devalued the currency yuan by 2% presumably to maintain export competitiveness. However, this helped only to aggravate the inherent weakness in the economy even more (read: Inside The Crash in China ETFs).
 
Along with Fed-centric uncertainty regarding interest rate hike, the ongoing woes in the Chinese economy have led to increased volatility in the U.S. market. The CBOE Volatility Index (VIX), a fear gauge which measures investor perception of the market’s risk, added more than 86% in the past one month (as of Sep 14, 2015) (read: Volatility ETFs Jump on Rising Global Fears).
 
Fortunately with ETFs, investors can bet on a downturn in the global markets by using inverse or bear ETFs. These funds give the opposite of what their underlying benchmarks do on a daily basis and thus have been big winners in the recent turmoil (read: How to Profit from a Market Correction with Inverse ETFs).
 
Below we highlight three bear ETFs for investors who may want to consider a near-term short on the market, given the downturn in China. These products provided handsome returns over the past one-month period and the last trading session and are expected to continue doing so, especially if the current bearishness persists in the months ahead (see all Inverse Equity ETFs here).
 
Direxion Dly CSI 300 Chn A Shr Br 1X ETF (CHAD)
 
Having debuted on June 17, 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.
 
Barely a few months old, this timely launched ETF has already amassed over $250 million in assets. The fund charges 80 bps in fees and trades in solid volume of nearly 451,000 per day. It was up 15.1% in the last one month and added 4.6% in the last trading session.
 
ProShares UltraShort FTSE China 50 (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 $87 million in assets and charges 95 bps in fees. It trades in an average volume of more than 197,000 shares. The product was up 17.3% in the past one month and rose 2% yesterday.
 
ProShares Short FTSE China 50 (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 nearly $15 million in assets and charges 95 bps in fees. It exchanges nearly 21,000 shares in hand per day. The fund added 9.3% in the last one month and went up nearly 1% yesterday.
 
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DIRX-CSI CASB1X (CHAD): ETF Research Reports
 
PRO-ULS FT CH25 (FXP): ETF Research Reports
 
PRO-SH FT CH25 (YXI): ETF Research Reports
 
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