Leveraging Up The China ETF Trade

Chinese stocks are making their presence felt in this year's emerging markets rally. For example, the largest China exchange traded fund listed in the U.S. is up more than 10 percent year-to-date. Resurgent Chinese stocks are creating opportunities in leveraged China ETFs for risk-tolerant, tactical traders. 

Traders looking to bet on more near-term upside for big-name Chinese stocks trading in Hong Kong, also known as H-shares, can consider the Direxion Daily FTSE China Bull 3X Shares YINN. YINN attempts to deliver triple the daily returns of the FTSE China 50 Index. 

As the name of that index implies, it is a narrow gauge of Chinese equities. An intraday dalliance with YINN, the recommended way of using this is essentially a short-term position in Chinese banks. YINN's underlying index allocates about half its weight to financial services stocks, more than triple its second-largest sector weight, which is energy.

Traders considering a leveraged ETF like YINN would do well to monitor news flow out of Washington, D.C. and Beijing as President Donald Trump attempts to bolster U.S. ties with China without stepping on too many toes.

“Several months later, and following an April meeting with Chinese President Xi Jinping, President Trump has reversed his stances. He admitted that China is not a currency manipulator and has not yet used his executive power to increase tariffs on Chinese goods,” said Direxion in a recent note. “China’s Renminbi has rallied through much of 2017 off of extremely positive trade data. In that same time, the strength of the dollar has waned slightly and U.S. markets have cooled off from the post-election rally, especially once Trump himself said that 'the dollar is too strong' after meeting with Xi. All of this has bolstered the China 50 Index by more than 10 percent since January.” 

Over the past month, YINN has averaged daily inflows of nearly $731,000, according to Direxion data. With Chinese Internet stocks surging, traders may also want to have a look at the Direxion Daily CSI China Internet Index Bull 2X Shares CWEB. CWEB, which is double- not triple-leveraged, is the first leveraged play on Chinese Internet stocks.

CWEB seeks to deliver double the daily performance of the CSI Overseas China Internet Index. Over the past 30 days, daily inflows to CWEB are north of $70,000, according to issuer data.