It's Time For The Inverse A-Shares ETF Again

Monday looks like it could be a promising day for the Direxion Daily CSI 300 China A Share Bear 1X Shares CHAD, the only bearish exchange traded fund listed in the United States that gives traders a bearish view on mainland Chinese stocks.

CHAD, which is designed to deliver the daily inverse performance of the CSI 300 Index on a percentage-for-percentage basis, has the potential to deliver impressive gains because the CSI 300 Index was down nearly 9 percent by the time the morning break rolled around during Monday's Asian session. Remember, limit down in China is 10 percent.

CHAD is about two months old and the ETF was highlighted here a month ago, prescient analysis because in that time, CHAD has surged 15.2 percent without the benefit of leverage.

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Indicating that CHAD is not perfect and that mainland Chinese stocks have been increasingly volatile, CHAD has not been a negative mirror image of the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF ASHR and the Market Vectors ChinaAMC A-Share ETF PEK over the past month. Over that span, ASHR and PEK, A-shares ETFs that benchmark to the CSI 300 Index, are off an average of 18.8 percent.

Still, CHAD is a departure from other inverse ETFs in that traders have been getting this trade right. Sure, some have insisted on allocating capital to CHAD's bullish, double-leveraged cousin, the Direxion Daily CSI 300 China A Share Bull 2X Shares CHAU, but CHAD's inflows make it one of the most successful ETFs to come to market this year. 

Since its mid-June debut, CHAD has attracted $291.4 million in assets, or 3.4 times the amount CHAU has hauled in.

Headlines say CHAD is primed for more upside. A-shares are considered expensive in the eyes of some market observers, China's central bank stubbornly refused to lower the reserve requirement ratio over the weekend and news that the nation's pension fund is buying stocks was clearly not met with any enthusiasm. Plus, the Shanghai Composite's chart is fragile, at best. 

CHAD comes into Monday having closed higher in five of the past six sessions. The ETF needs to gain another 16.7 percent to reclaim the high set on July 8.