China ETFs In Focus As China’s Central Bank Pledges To Make The Yuan More Flexible (FXP, FXI, CZI)

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June 21, 2010 10:30pm NYSE:CZI NYSE:FXI

“Exchange-traded funds that give investors exposure to Chinese stocks and the yuan rallied Monday, gaining after the country said it would gradually allow its currency to trade more freely


 against the U.S. dollar. The iShares FTSE/Xinhua China 25 Index Fund  (NYSE:FXI) jumped nearly 4% in U.S. trading. It is one of the largest ETFs by assets with more than $8 billion. The tracking index is comprised of the 25 largest and most liquid Chinese companies listed on the Hong Kong Stock Exchange  (HK:HSI) . Even with Monday’s rally, the ETF remains slightly in the red for the year-to-date period,” John Spence Reports From Market Watch.

“The news out of Beijing over the weekend is likely to cause a surge in interest in ETFs that offer exposure to the yuan/dollar exchange rate,” wrote Michael Johnston, senior analyst at ETF Database, in commentary Monday. “Although any immediate appreciation is expected to be moderate, the appeal of establishing exposure to the Chinese currency has increased significantly.” WisdomTree Dreyfus Chinese Yuan Fund has been “one of the most popular ETFs of 2010, taking in more than $350 million in cash inflows through the first five months of the year,” he noted.

Spence goes on to say, “Leveraged and inverse ETFs for Chinese stocks saw big price swings Monday. Two bearish funds, Direxion Daily China Bear 3x Shares (NYSE:CZI) and ProShares UltraShort FTSE/Xinhua 25  (NYSE:FXP) , lost more than 7%.”

“The Saturday night announcement was likely designed to blunt the backlash of export-dependent industries that have thrived on a cheap currency. It also set the stage for a frantic beginning to the trading week around the globe, with most equity markets surging at the opening bell on Monday is response to the long-awaited shift. Many of the beneficiaries from China’s new-found exchange rate flexibility are obvious. With the Chinese yuan appreciating relative to the U.S. dollar, funds offering exposure to the currency jumped in early trading.  Chinese equity markets also got a big boost to start the week, as economists predict that a more rapid transition away from dependence on international consumers will benefit equities in the long run. And of course foreign manufacturers that compete with Chinese imports–particularly in the U.S.–were celebrating the news,”  Johnston Reports.

Here are some more details on the 3 ETFs mentioned in the article below:

ProShares UltraShort FTSE/Xinhua 25  (NYSE:FXP)

The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the FTSE/Xinhua China 25 index. The fund normally invests at least 80% of assets in financial instruments with economic characteristics that should be inverse to those of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is nondiversified.

Chart forUltraShort FTSE/Xinhua China25 Proshares (FXP)

Direxion Daily China Bear 3x Shares (NYSE:CZI)

The investment seeks to replicate, net of expenses, 300% of the inverse daily performance of the BNY Mellon China Select ADR Index. The fund will invest at least 80% of assets in securities that comprise the index. It will also utilize financial instruments that, in combination, provide leveraged and unleveraged exposure to the index. The fund is nondiversified.

Chart forDirexion Daily China Bear 3X Shares (CZI)

iShares FTSE/Xinhua China 25 Index Fund  (NYSE:FXI)

The investment seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the FTSE/Xinhua China 25 index. The fund generally invests at least 90% of assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. The underlying index consists of 25 of the largest and most liquid Chinese companies. It may invest the remainder of assets in securities not included in its underlying index but which BGFA believes will help the fund track the underlying index. The fund is nondiversified.

Chart foriShares FTSE/Xinhua China 25 Index (FXI)


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