Bear Market Hits China: Cue the FXP

The China Shanghai Index fell another 4.3% today for a YTD move of -19.9% and with the talking heads heavy on the Doom of China the ProShares UltraSh FTSE/Xinhua China 25 (Public, NYSE:FXP) deserves your attention.

China's economy and incredible growth is finally slowing and with their stock market beat up beyond belief, now is the time to consider the ETF's that trade on their economy. The FXP has already moved up 7.5% this week to $10.50 a share thanks to the the Shanghai Composite falling 19.9% this year, which is dangerously close to the 20% threshold for a bear market. Panic selling overnight has shattered market confidence in China, according to one Shanghai fund manager. “ China enters bear market”, says a Bloomberg headline this morning.

As we’ll see, this is just the beginning. We expect a bigger worldwide rout. A mass flight of money from overheated stocks into one undervalued asset that’s set to soar.

Your options for betting on China's overall equity market are the following:

Long China - iShares FTSE/Xinhua China 25 Index (ETF) (Public, NYSE:FXI)
Shares FTSE/Xinhua China 25 Index Fund (the Fund) seeks investment results that correspond generally to the price and yield performance of the FTSE/Xinhua China 25 Index (the Index). The Index is designed to represent the performance of the largest companies in the Chinese equity market that are available to international investors. The Index consists of 25 of the largest and most liquid Chinese companies. Securities in the Index are weighted based on the total market value of their shares, so that securities with higher total market values generally have a higher representation in the Index.

Short China - Our Recommendation- ProShares UltraSh FTSE/Xinhua China 25 (Public, NYSE:FXP)
ProShares UltraShort FTSE/Xinhua China 25 (the Fund) seeks daily investment results that correspond to twice the inverse daily performance of the FTSE/Xinhua China 25 Index (the Index). The Index consists of 25 of the largest and most liquid Chinese stocks listed on the Hong Kong Stock Exchange. This free float-adjusted index caps the weight of any of constituent stock at 10% to ensure broad representation of the Chinese economy. The Fund takes positions in securities and/or financial instruments that, in combination, should have similar daily return characteristics as –200% of the daily return of the Index.

If you are new to the FXP, then make sure you are in this ETF as a trade, not a long-term hold.  This ETF swings like crazy and if you get in and bank a decent return, get out before it backfires on you.

Despite the Shanghai Composite falling 19.9% this year the FXP is down 70%, so this ETF does not work on a long-term basis, again, timing is everything in a post 2008 world.

Happy Safe Investing.

Disclaimer: No positions in any of the securities mentioned in this publication.