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The $YINN or $YANG on China: Pain or Gain Ahead?

June 22, 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.

The Chinese market is unique in the sense that its economy has crossed over into developed market status, but its equities still exhibit volatility akin to an emerging market.  Like many other stock markets around the world, the Chinese market has struggled in the past year, as its economy continues to grapple with Covid lockdowns and other internal issues.

YINN or YANG?

China’s equity market has a strong tendency to drive emerging market returns.  Its recent underperformance continues to weigh on the emerging market sector overall.  The seesawing back and forth between Covid restrictions is likely a factor in terms of repelling investors away from their markets.  Additional factors including rising youth unemployment and a contraction in retail sales are mounting headwinds for the economy.  For traders looking to position according to the bearish outlook in Chinese equities, Direxion offers the Daily FTSE China Bear 3x Shares (Ticker: YANG) fund, which seeks to track 300% of the daily downside of the FTSE China 50 index.*

Below is a daily chart of YANG as of June 16, 2022:

Candlestick charts display the high, low (stick), open, and closing prices (body) of a security for a specific period.

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. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.

Chinese Government to the Rescue?

The Chinese government has started to pursue measures to mitigate a sustained economic contraction, especially in the tech sector.  They are reviewing antitrust action and consumer data protection regulations that were imposed early in 2021.  Additionally, they’re stepping in to help raise capital for various private sector firms to weather an economic storm.  Although these measures haven’t been immediately effective in rescuing the performance of Chinese equities, we know that markets have a tendency to discount future events.  This means that current share price levels could be trading at a major discount, offering short-term traders unique opportunities to capture short-term technical bounces. If you think these government interventions will boost Chinese stocks in the short run, Direxion’s Daily FTSE China Bull 3x Shares (Ticker: YINN) Leveraged ETF could provide traders a means to play rallies in the Chinese equity market.

Below is a daily chart of YINN as of June 16, 2022:

The performance data quoted represents past performance. Past performance does not guarantee future results.  For standardized performance click here.

Additional Emerging Market Opportunities

The meteoric rise in the U.S. Dollar continues to hinder emerging market performance.  This is especially a concern for countries that issued large amounts of dollar-denominated debt. However, some traders may bet that China is best-positioned among the emerging market equity sector to weather this dollar-driven storm.  For traders looking to make broader based bets on emerging markets, Direxion offers the Daily MSCI Emerging Market Bull 3x Shares (Ticker: EDC) and the Daily MSCI Emerging Market Bear 3x Shares (Ticker: EDZ) fund, which tracks 300% of the daily respective upside and downside of the MSCI Emerging Markets Index.* 

For traders looking for more concentrated bets within China, there are also the Daily CSI 300 China A Share Bull 2x Shares (Ticker: CHAU) and the Daily CSI China Internet Index Bull 2x Shares (Ticker: CWEB) funds.  CHAU tracks the 200% of the daily upside of the CSI 300 Index,* while CWEB tracks 200% of the daily upside to the CSA Overseas China Internet Index.*

*Definitions:

The FTSE China 50 Index consists of the 50 largest and most liquid public Chinese companies currently trading on the Hong Kong Stock Exchange as determined by FTSE/Russell.

The CSI Overseas China Internet Index is provided by China Securities Index Co., LTD and is designed to measure the performance of the investable universe of publicly traded China-based companies whose primary business or businesses are in the Internet and Internet-related sectors, as defined by the index sponsor, China Securities Index Co., Ltd.

The CSI 300 Index is a modified free-float market capitalization weighted index comprised of the largest and most liquid stocks in the Chinese A-share market

The MSCI Emerging Market IndexSM is a free float-adjusted market capitalization weighted index that is designed to represent the performance of large- and mid-capitalization securities across emerging markets countries. 

Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.

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.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs) Risk, and risks specific to Chinese securities, including Chinese Government Risk, Chinese Markets Risk, Chinese Currency Risk, and Hong Kong Securities Risk. The Chinese economy is generally considered an emerging market and can be significantly affected by economic and political conditions and policy in China and surrounding Asian countries. Securities from issuers in emerging markets face the potential for greater market volatility, lower trading volume, higher levels of inflation, political and economic instability, greater risk of market shutdown and more government limitations on foreign investments than typically found in more developed markets.

Additional risks include, for the Direxion Daily FTSE China Bull 3X Shares, Daily Index Correlation Risk and for the Direxion Daily FTSE China Bear 3X Shares, Daily Inverse Index Correlation Risk, and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

Distributor: Foreside Fund Services, LLC.

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