Market Overview

Direxion Launches New Leveraged China A-Share ETF

Direxion Launches New Leveraged China A-Share ETF

Chinese stocks have been red hot this year, and a new entrant in the ETF space is looking to intensify those returns through the use of leveraging.

Direxion Investments recently introduced the Direxion Daily CSI 300 China A Share Bull 2x Shares (NYSE: CHAU). This ETF seeks to replicate 200 percent of the daily performance of the CSI 300 Index, representing the 300 largest and most liquid stocks in the China A-share market.

A Closer Look

CHAU will follow in the footsteps of the highly successful Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (NYSE: ASHR), which has accumulated over $1.2 billion in assets. As evident in the chart below, investors have been flourishing on the returns of Chinese A-share securities over the last year.

Related Link: China A-Share ETFs Dominate First-Quarter Returns


Sector Peer

ASHR has gained nearly 122 percent over the last 52-weeks and just recently hit new all-time highs. Many investors have speculated whether or not Chinese stocks are currently in bubble territory.

While CHAU will use leverage to produce daily returns that are approximately double that of ASHR, investors should be wary of expecting those same gains to compound over time. The frequent rebalancing and magnification of daily price changes make holding leveraged ETFs over long periods a risky proposition.

Unique Offerings

This new fund will offer a unique dynamic for investors looking to boost their gains outside of traditional Chinese indices that are traded abroad. The well-established ProShares Ultra FTSE China 50 (NYSE: XPP) tracks 200 percent of the daily performance of the FTSE China 50 Index.

This represents the 50 largest stocks on the Hong Kong Stock Exchange. XPP is the magnified version of the iShares FTSE/Xinhua China 25 Index (ETF) (NYSE: FXI).

Both CHAU and XPP charge a net expense ratio of 0.95 percent and should only be considered for aggressive investors with short-term time horizons that understand the risks of leverage.

Image Credit: Public Domain


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