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Chinese Stocks: Great Wall of Worry or Great Comeback Trade?

January 07, 2022

Editor’s note: Any and all references to timeframes longer than one trading day are for purposes of market context only, and not recommendations of any holding timeframe. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don’t have the resources, time or inclination to constantly monitor and manage your positions, leveraged ETFs are not for you.

Chinese Stocks: Comeback (YINN ETF) or More Downside (YANG ETF)?

After peaking in February, Chinese stocks suffered sharply in 2021 thanks to policy crackdowns by both China and the US. At the end of day, the US outperformed China by 49%! Volatility increased sharply as well, but Chinese stocks did decline from its 2021 highs in late August. In this installment of Xchange, we will

  • Review Chinese Stock 2021 Performance
  • Explore Pressures in the Chinese Stock Real-Estate Sector
  • Assess If It Is Time to Buy the Dip in Chinese Stocks
  • Chinese Stock ETFs to Consider

Chinese Stocks Fell Hard in 2021

Total Return comparison performance chart of U.S. Stocks vs. Chinese Stocks in 2021.

Source: Bloomberg Finance, L.P., as of December 23, 2021. US represented by the S&P 500 Index and China represented by the FTSE China 50 Index. Past performance is not indicative of future results.

Chinese Stocks: Property Sector Was Under Pressure

The property sector in China has been under significant pressure over recent months. While China Evergrande Group remains the most well-known other developers have exhibited stress with reports of hidden debts and inter-company deals. S&P declared Evergrande in default on December 17, while Fitch downgraded its credit rating. Fitch stripped another developer, Shimao Group, lost its investment grade rating as well.

Most recently, residential property sales fell 20% from a year earlier. At the same time, retail sales slumped indicating weakness in the economy. Some are speculating the People’s Bank of China (PBOC) will continue to ease policy further to help after they recently cut reserve requirements for banks. On December 20, the PBOC cut the one-year loan prime rate (LPR) for the first time since April 2020.

Are Traders Ready to Buy the Dip in China?

US-listed Chinese companies remain under pressure as well, especially after Didi Global announced it is delisting from the New York Stock Exchange only five months after its listing. Regardless, traders are getting comfortable stepping into Chinese names and preparing for a bounce back.

If you are looking for Chinese stocks to recover in the short-term, and you are comfortable with uncertainty, look to Daily Chinese Bull funds. However, if you believe China may continue to see downside, Daily Chinese Bear funds may be worth a look.

The Direxion Daily FTSE China Bull 3X Shares (YINN) and Direxion Daily FTSE China Bear 3X Shares (YANG) offers traders 300% or -300% of the daily exposure to the performance of the FTSE China 50 Index. The Index consists of the 50 largest and most liquid public Chinese stocks currently trading on the Hong Kong Stock Exchange.

For more precise exposure, the Direxion Daily CSI China Internet Index Bull 2X Shares (CWEB) offers traders 200% the daily exposure to the performance of the CSI Overseas China Internet Index. The Index is designed to measure the performance of the investable universe of publicly traded China-based stocks whose primary business or businesses are in the internet and internet-related sectors.

Visit direxion.com to learn more about Leverage & Inverse ETFs.