These Leveraged China ETFs Are Hot

Emerging markets equities are setting a scintillating pace this year and China, the largest developing economy, is a big reason why. The largest China exchange traded fund listed in the U.S. is up more than 25 percent year-to-date.

Some traders are recognizing the opportunity being offered by leveraged China ETFs, including the Direxion Daily FTSE China Bull 3X Shares YINN. YINN attempts to deliver triple the daily performance of the widely followed FTSE China 50 Index. 

According to Direxion, the index consists of the 50 largest and most liquid public Chinese companies currently trading on the Hong Kong Stock Exchange. Top holdings in the index include Tencent Holdings Ltd TCEHY (9.29 percent), China Construction Bank Corporation CICHY (8.67 percent), China Mobile Ltd. (ADR) CHL (7.71 percent), and Industrial & Commercial Bank of China (7 percent).

Treading Carefully

YINN's index is designed to deliver exposure to Chinese stocks that trade in Hong Kong, also known as H-shares. As the index description implies, many of those names are large- and mega-cap stocks. While China is one of the least volatile emerging markets on a historical basis, that does not mean traders should turn YINN into a long-term investment.

Leveraged ETFs are inherently volatile and that is particularly of leveraged emerging markets single-country funds like YINN. YINN is best deployed as a short-term trade and can be used as a play on short-term, bullish themes in stocks such as Tencent or large-cap Chinese financial services firms.

Tencent accounts for essentially all of the FTSE China 50 Index's technology weight. The index is not diverse at the sector level as financial services names account for half of the benchmark's weight.

Increasing Interest

With the FTSE China 50 Index up about 10.5 percent in the third quarter, traders have recently been paying increased attention to YINN. Over the past month, the triple-leveraged China ETF is averaging daily inflows of $160,000, according to Direxion data.

That is nearly double the daily inflows seen by YINN's bearish counterpart, the Direxion Daily FTSE China Bear 3X Shares YANG, over the same period. YANG attempts to deliver triple the daily inverse returns of the FTSE China 50 Index.

Related Links:

Don't Forget This Europe ETF.

An Anti-Dollar Play.