Bears Backing Away From A-Shares Could Jolt This ETF

Over the past three months, the Shanghai Composite, the benchmark index for onshore Chinese equities or A-shares, has tumbled 24.7 percent. That has made U.S.-listed A-shares exchange traded funds, namely the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF ASHR, favored targets of short sellers.

That scenario has also given rise to the Direxion Daily CSI 300 China A Share Bear 1X Shares CHAD, making the lone U.S.-listed inverse A-shares ETF one of the mos successful new ETFs to come to market this year.

However, short sellers are covering positions in ASHR, indicating that they might believe the ETF's six-month decline of more than 23 percent could be enough. That could be good news for CHAD's bullish, double-leveraged counterpart, the Direxion Daily CSI 300 China A Share Bull 2X Shares CHAU.

“Short interest on the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF fell to 9.2 percent as a percentage of shares outstanding on Friday, the lowest since June 9 and down from a record 25 percent in August, according to data compiled by Markit,” reports Bloomberg. 

CHAU, which debuted in April as the first leveraged A-shares ETF trading in New York, attempts to deliver double the daily performance of the CSI 300 Index. That is the same benchmark tracked by ASHR, the largest A-shares ETF trading in the U.S.

Beijing has taken steps to calm global investors' nerves after the A-shares rout shaved trillions of dollars off the market value of Shanghai's equity market, the world's second-largest behind the U.S. Short covering in ASHR could be taken as an indication bearish traders are acknowledging efforts, such as lower interest rates and reduced down payments for real estate investments, and that Beijing has plenty of ammunition with which to attempt to curb Chinese equity market volatility.

Still, not all of Beijing's efforts to intervene in China's equity market calamity have brought the desired results, giving some traders in the U.S. pause about dropping CHAD in favor of CHAU.

Even with today's loss of about two-thirds of a percent at this writing, ASHR has traded modestly higher over the past month. Since the start of September, however, traders have pulled over $15 million from CHAU while adding $43.2 million to CHAD. Since coming to market, CHAD has seen inflows of $221.1 million though CHAU has not been a slouch, raking in $98 million in assets. Those totals are among the most impressive for any ETF that has debuted in 2015.

Last month, CHAU lost just 0.11 percent and was the eighth-most volatile fund among Direxion's leveraged bullish ETFs, according to issuer data.