The One China ETF You Need To Know Today

At this writing, which occurred just after 3AM Eastern time Monday morning, the Shanghai Composite was down almost 7.7%, positioning mainland China’s benchmark equity index for its worst one-day loss in eight years.

"Industrial profits fell 0.3 percent in June from a year earlier, the statistics bureau said Monday, after data Friday showed a private gauge of manufacturing dropping to a 15-month low," according to Bloomberg.

For traders daring enough to dance with China exchange traded funds, the choice is obvious: The Direxion Daily CSI 300 China A Share Bear 1X Shares CHAD. For those not acquainted with CHAD, do not fret. The ETF is new, having debuted in mid-June, which is to say CHAD has some of the most enviable timing of any new ETF to come to market, well, ever.

CHAD is an inverse though not leveraged ETF, meaning it is designed to deliver the daily inverse performance of the CSI 300 Index. The CSI 300 Index tracks what are known as A-shares, the stocks trading in Shanghai and Shenzhen, which is to say Monday’s plunge by the Shanghai Composite was also felt by the CSI 300 Index.

The CSI 300 Index is also the underlying benchmark for the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF ASHR and the Market Vectors ChinaAMC A-Share ETF PEK. ASHR is the largest U.S.-listed A-shares ETF while PEK is the oldest. Once among this year’s top-performing non-leveraged ETFs, all ASHR and PEK have done over the past month is lose an average of 15.2%. That has helped CHAD gain nearly 10% over the same period.

CHAD has a significant advantage in that it is the only bearish A-shares ETF currently on the market. While there are other inverse China ETFs and put options available on ASHR and other A-shares ETF, CHAD is the preferred choice of some traders for expressing bearish views on mainland Chinese equities.

Savvy traders have embraced the CHAD story in a big way. The ETF is just six weeks old and already has nearly $226 million in assets under management. For any new ETF, that is great work in several months or a year. For CHAD to do that in less than two months, it is stunning. With A-shares volatility increasing, CHAD could be poised to rebound from a savage decline that has the ETF entering Monday below $45 after flirting with $61 earlier this month.

“Much of the volume in China is from individual day traders with little understanding of what they are buying. Chinese investors opened nearly 5 million trading accounts in March. According to Southwestern University of Finance and Economics in China, over 60% of China’s new investors last year did not complete high school. Some say there are few alternatives for local Chinese to invest. Since real estate and wealth management investments have soured, investors have returned to the stock market. Adding to the bear argument is that the leverage in the category is high. Outstanding loans to Chinese stock investors increased 300% to a high of $269 billion ($1.67 trillion yuan) as of last April,” according to a new Direxion research note.