China’s stock market rally could be in its early stages, giving traders plenty of time to ride the momentum wave using leveraged exchange traded funds (ETFs) like the Direxion Daily CSI 300 CHN A Share Bull 2X ETF (CHAU) and the Direxion Daily FTSE China Bull 3X ETF (YINN).
Per a Markets Insider report, at one point, Chinese equities were deemed “uninvestable,” but a recent rally is making investors think twice. The economy was shaken by a real estate development crisis in 2021, and has been struggling to regain its footing.
Since then, the government has been implementing stimulus measures to try and revitalize economic growth. A rallying stock market is bringing back investor confidence.
“As is often the case, extremes in sentiment often work better as contrarian signals commonly found at important inflection points in the market,” said LPL Financial strategist Adam Turnquist.
Given the rally, bearish bets on China are starting to diminish as indexes like the MSCI China push higher. Thus far, it’s up about 9% year-to-date. This is a far cry from where it was when it hit rock bottom.
“Roughly one-third of constituents reached new four-week highs last week, while close to 50% are also above their 200-day moving average, marking the highest percentage reading since August,” he said.
The rally couldn’t come at a more opportune time. Markets Insider reported that Chinese stocks were experiencing six straight months of outflows. Now, the tables have turned and a bullish case could be solidified if the uptrend persists.
“Northbound flows that link Hong Kong and mainland stock exchanges in China have been positive for three straight months, pouring nearly 100 billion yuan into mainland shares since February,” Turnquist added.
Leverage the Early Rally
CHAU and YINN offer traders a chance to get in early on a Chinese equities rally while maximizing profit with leverage. CHAU offers 200% exposure to the CSI 300 Index (CSIN0301). That is a modified free-float market-cap-weighted index comprised of the largest and most liquid stocks in the Chinese A-share market.
If traders want more, than YINN will do with its 300% exposure. It tracks the FTSE China 50 Index (TXIN0UNU). This 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.
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