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Wall Street Remains Bullish On China

December 2, 2020 2:37 pm
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Wall Street Remains Bullish On China

The November rally in U.S. equities may be garnering most of the attention (especially as we get closer to having a COVID-19 vaccine) but don’t sleep on China.

Among Direxion’s stable of leveraged ETFs, two of the five top-performing funds year to date provide magnified exposure to China. Here’s a breakdown of what has driven each fund higher.

Daily CSI 300 China A Share Bull 2X Shares

The Direxion Daily CSI 300 China A Share Bull 2X Shares (NYSE: CHAU) finds itself higher by about 17% over the past month. The ETF, which aims to deliver 200% the daily performance of the CSI 300 Index, has been propelled to its current levels thanks to strength across a surprising array of consumer-driven sectors including financials as well as consumer staples and discretionary stocks.

Standouts within the ETF include China Merchants Bank (OTC:CIHKY), higher by about 25% in November, and appliance manufacturers Gree Electric and Midea Group, which both rose about 15% during the month.

Bolstering these and other Chinese A-share equities in the index are strong consumer spending numbers. However, those spending numbers aren’t from Chinese consumers. Instead, these A-shares are being supported through strong export numbers to consumer economies outside of China, in neighboring countries like Singapore, Malaysia, and even the U.S. and Europe.

China’s own consumers are not so eager to spend, especially as an estimated 9% of its workforce remains unemployed. As a result, much of the country’s economic traction is coming from the country’s booming export figures, which may diminish if and when the world bounces back from the pandemic.

Nevertheless, the numbers have been an encouraging driver for Chinese stocks at large. And even though exports are the primary economic driver, they’re not the only one.

In a dynamic that U.S. investors are very familiar with, companies with large online presences have dominated and become increasingly central to China’s economy, as evidenced by the strength in Direxion’s Daily CSI China Internet Index Bull 2X Shares (NYSE: CWEB). Though the trade has cooled off of late, CWEB has still more than doubled in 2020.

That return is the product of fairly consistent growth across most of the country’s many internet giants. This of course includes e-commerce powerhouses Alibaba Group Holding Limited (NYSE:BABA) JD.com, Inc. (NASDAQ:JD) and Meituan-Dianping (OTC:MPNGF), the latter of which has seen massive growth thanks to its online food delivery.

However, the biggest standout among this internet contingent is the recently IPO’ed fintech KE Holdings, Inc. (NYSE:BEKE), which has surged 72% since its listing in early August. Backed in part by Japan’s SoftBank Group Corp (OTC:SFTBY), the online property platform has drawn comparisons to Zillow Group Inc (NASDAQ:ZG) and has ridden on rising enthusiasm in China’s economic resilience and sustained growth in boosting the nation’s real estate market.

In addition to CHAU and CWEB, Daily FTSE China Bull 3X Shares (NYSE: YINN) (up 15% in the last month) and Direxion Daily Emerging Markets Bull 3X Shares (NYSE: EDC) (up 29%) have also outperformed.

Ultimately, what continues to drive China’s growth is its dedication to building itself by investing in public services and utilities like high-speed internet and essential infrastructure to bolster both its manufacturing and technological capabilities. These investments, combined with the allure of its rising middle class, appear likely to keep Wall Street bullish on China in spite of any geopolitical headwinds.

 

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. Short term performance is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns.

For the most recent month-end and standardized performance click here

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

Market Disruptions Resulting from COVID-19. The outbreak of COVID-19 has negatively affected the worldwide economy, individual countries, individual companies and the market in general. The future impact of COVID-19 is currently unknown, and it may exacerbate other risks that apply to the Fund.

CUSIP Identifiers have been provided by CUSIP Global Services, managed on behalf of the American Bankers Association by Standard and Poor’s Financial Services, LLC, and are not for use or dissemination in any manner that would serve as a substitute for a CUSIP service. The CUSIP Database, © 2011 American Bankers Association. “CUSIP” is a registered trademark of the American Bankers Association.

Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.

The CSI 300 Index (“Index”) is calculated by China Securities Index Company (“CSI”). CSI does not make any warranties, express or implied, to any of their customers or anyone else regarding the accuracy or completeness of any data related to the Index. All information is provided for information purposes only. CSI accepts no liability for any errors or any loss arising from the use of information.

Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.

Direxion Shares Risks – There are special risk considerations relating to Stock Connect Program and RQFII and QFII investors and the Chinese A-Share market. The Stock Connect Program is subject to daily and aggregate quota limitations, and an investor cannot purchase and sell the same security on the same trading day, which may restrict the other funds’ or counterparties’ ability to invest in A-Shares through the Stock Connect Program and to enter into or exit trades on a timely basis. A-shares are issued by companies incorporated in the People’s Republic of China (“PRC”). The A-share market in China is made available to domestic PRC investors and certain foreign investors, including those foreign investors that have been approved as Renminbi Qualified Foreign Institutional Investors (“RQFII”) or as Qualified Foreign Institutional Investors (“QFII”). The Fund’s ability to achieve its inverse investment objective is dependent on the ability of other ETFs and counterparties to obtain their QFII or RQFII quota. If the Fund is unable to obtain sufficient exposure to the Index due to the limited availability of necessary investments or financial instruments, the Fund could, among other things, as a defensive measure, limit or suspend creation units until the adviser determines that the requisite exposure to the Index is obtainable. During the period that creation units are suspended, the fund could trade at a significant premium or discount to its NAV and could experience substantial redemptions.

Risks associated with investments in Chinese companies include, among others, (i) the small size of the market for Chinese securities and low trading volume, resulting in a lack of liquidity and in price volatility; (ii) currency devaluations and other currency exchange rate fluctuations or blockages; (iii) the nature and extent of intervention by the PRC government in the Chinese securities markets, whether such intervention will continue and the impact of such intervention or its discontinuation; (iv) the risk of nationalization or expropriation of assets; (v) the risk that the PRC government may decide not to continue to support economic reform programs; (vi) limitation on the use of brokers; (vii) higher rates of inflation; (viii) greater political, economic and social uncertainty; (ix) market volatility caused by potential regional or territorial conflicts or natural disasters and; (x) the risk of increased trade tariffs, embargoes and other trade limitations. These factors can directly affect A-shares, and may indirectly affect investments that derive their value from A-shares. Any reduction or elimination of access to A-shares will have a material adverse effect on the ability of the fund to achieve its investments objective.

Risks of the Fund include Effects of Compounding and Market Volatility Risk, Derivatives Risk, Leverage Risk, Market Risk, Market Disruption Risk, Aggressive Investment Techniques Risk, Counterparty Risk, Intra-Day Investment Risk, Daily Index Correlation/Tracking Risk, Other Investment Companies (including ETFs) Risk, and Emerging Markets Risk. Investing in, and/or having exposure to, emerging markets instruments involves greater risks than investing in issuers located or operating in more developed markets. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

Direxion Funds Risks – An investment in the Funds involves risk, including the possible loss of principal. The Funds are non-diversified and include risks associated with concentration risk which results from the Funds’ investments in a particular industry or sector and can increase volatility over time. Active and frequent trading associated with a regular rebalance of a fund can cause the price to fluctuate, therefore impacting its performance compared to other investment vehicles. For other risks including correlation, compounding, market volatility and specific risks regarding each sector, please read the prospectus.

Distributor for Direxion Shares: Foreside Fund Services, LLC.


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