Market Overview

China Delisting Bill Could Put These Geared ETFs Into Gear

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Imagine a world where Alibaba (NYSE: BABA) doesn't trade in the U.S. If some senators have their way, Chinese stocks would either be booted from U.S. exchanges or subject to significantly more scrutiny.

What Happened

On Wednesday, the Senate easily passed a bill that would forbid the likes of Alibaba, JD.com (NASDAQ: JD) and scores of other Chinese companies from listing in the U.S. – a political push that could put the spotlight on leveraged exchange-traded funds such as the Direxion Daily FTSE China Bull 3X Shares (NYSE: YINN) and the Direxion Daily FTSE China Bear 3X Shares (NYSE: YANG).

The bullish YINN attempts to deliver triple the daily returns of the FTSE China 50 Index, which contains Hong Kong-listed Chinese firms, several of which also trade in New York.

Why It's Important

It may seem far flung that Chinese companies will be barred from trading in the New York, but in the wake of the Luckin Coffee fiasco and increasing tensions between the world's two largest economies, the aforementioned Senate bill enjoys bipartisan support, a rarity on Capitol Hill.

“If a company can’t show that it is not under such control or the Public Company Accounting Oversight Board isn’t able to audit the company for three consecutive years to determine that it is not under the control of a foreign government, the company’s securities would be banned from the exchanges,” according to Bloomberg.

For now, markets don't appear convinced the bill will be signed into law as the bullish YINN gained 3.67% on Wednesday.

What's Next

While odds are currently long on the bill's passage, that could be a case of market's underestimating the legislation's practicality.

Not only does President Trump not shy away from heavy-handed stances against China, but the bill's authors – Sen. John Kennedy (R-LA) and Chris Van Hollen (D-MD) – are pragmatic in their approach. That could bode well for the bill's fate and YANG's play on its passage.

Kennedy said the aim isn't to start a rift with China. He merely wants Chinese public companies trading in the U.S. to be held to the same standards as their American counterparts.

“Publicly listed companies should all be held to the same standards, and this bill makes common sense changes to level the playing field and give investors the transparency they need to make informed decisions,” said Van Hollen in a press release.

 

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