Bearish China ETF May Have More Upside

In pre-market news Tuesday, Benzinga highlighted the Direxion Daily CSI 300 China A Share Bear 1X Shares CHAD as a way to play the ongoing slide being experienced by China A-shares, the stocks trading on the mainland there.

CHAD, the lone inverse A-shares ETF trading in New York, climbed nearly 3 percent on volume that was nearly four times the daily average, extending the ETF's one-month gain to 20.1 percent. That makes CHAD one of the best-performing China ETFs over that stretch. Even with that recently stellar run, CHAD may not be done delivering upside.

"Market strategists are looking to the psychologically important support level of 2,500 for the Shanghai Composite Index, which closed Tuesday just shy of 2,750. Metrics used by technical analysts point to the vicinity of that same round number," reports Bloomberg.

Related Link: Where To Hide With ETFs When China Is A Problem

The Shanghai Composite is the benchmark gauge of A-shares, but the CSI 300 Index is also widely followed by global investors. CHAD attempts to deliver the daily inverse performance of the CSI 300 Index on a percent-for-percent basis. The CSI 300 serves as the underlying index for a pair of New York-listed A-shares ETFs.

As A-shares have tumbled in recent months, investors have endured situations such as days where half the stocks trading on the mainland where halted by Chinese regulators and ineffective market interventions, a tool Beijing has since told market participants that they should not become too dependent on.

China, the world's second-largest economy, saw $1 trillion in capital outflows, a data point that will be widely cited as one of the reasons for the tumble in Chinese stocks during Tuesday's Asian session. The Shanghai Composite, the benchmark mainland equity gauge, bled 6.4 percent with the CSI 300 Index losing 6 percent.

Those scenarios and others are fuel for CHAD's fire, perhaps explaining why the ETF was one of the most successful of the 284 new ETFs to come to market in 2015. Retail investors' impact on A-shares is compelling as it pertains to CHAD because inverse and leveraged ETFs are often thought to be suckers bets used primarily by retail traders, not professionals. CHAD hauled in almost $157 million in assets last year and did so in just over six months on the market.