China Losing Streak Lures Traders To Leveraged ETF

Down more than 8 percent over the past month, the FTSE China 50 Index, one of the most widely followed gauges of Chinese stocks, is on a losing streak of more than two weeks, the likes of which the benchmark has not seen in several years.

Amid fears of an escalating trade war with the U.S., the FTSE China 50 Index is close to entering a bear market. The index resides about 10 percent below its 200-day moving average is nearly 20 percent below its 52-week high, both of which are bearish signals.

What Happened

Aggressive, short-term traders looking to establish bearish positions on large-cap Chinese stocks have some exchange traded funds (ETFs) to consider, including the Direxion Daily FTSE China Bear 3X Shares YANG. YANG attempts to deliver triple the daily inverse returns of the FTSE China 50 Index.

For the week ended June 25, YANG is up more than 20 percent while the FTSE China 50 Index is sporting a loss of close 7 percent.

Why It's Important

“A strengthening U.S. dollar has also contributed to those losses, but another reason is the rhetoric coming out of China's government after it said it is prepared to respond with tariffs of its own,” reports CNBC.

Trade tensions are stoking interest in YANG. Last week, volume in the inverse leveraged China fund jumped almost 57 percent above its 20-day trailing average, according to Direxion data. Only four of Direxion's leveraged ETFs saw larger volume spikes last week.

While leveraged bullish ETFs typically see larger inflows than their inverse counterparts, data suggest some traders are embracing YANG. Over the past month, YANG is seeing average daily inflows of more than $57,000, according to issuer data.

What's Next

Volatility cuts both ways with leveraged ETFs. The FTSE China 50 Index has a three-year standard deviation of almost 21 percent, which is advantageous for YANG as Chinese stocks decline. As enticing as that metric is, it serves as a reminder that YANG is best used over the short-term because if Chinese stocks rally, inverse products will be punished.

Nearly half of the components in YANG's underlying index are financial services companies.

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