Pomp and pageantry were on full display across mainland China on Tuesday as the country celebrated 70 years since the nation's Communist Party, led by Mao Zedong, defeated the Nationalist Party in a civil war to form the People's Republic of China on Oct. 1, 1949.
China's president Xi Jinping, who has the mandate to lead indefinitely, used a National Day speech ahead of an impressive military display and parade to highlight the Communist Party's role in advancing China. "No force can stop the Chinese people and the Chinese nation forging ahead," Xi told a crowd of carefully vetted guests in Tiananmen Square, per Bloomberg.
He also outlined that he was committed to a "peaceful reunification and one country, two systems" for Hong Kong – a special administrative state of China that has endured months of pro-democracy demonstrations after widespread perception that Beijing has impeded upon the freedoms it promised to Hong Kong when the city returned to mainland rule in 1997 after 156 years of British ownership.
As China's National Day holiday carries on this week, traders should closely monitor these three exchange-traded funds (ETFs) that provide exposure to both Chinese and Hong Kong stocks. Let's take a more detailed look at the metrics of each fund and parade through several trading possibilities.
Direxion Daily FTSE China Bull 3X Shares (YINN)
Launched in 2009, the Direxion Daily FTSE China Bull 3X Shares (YINN) aims to return three times the daily performance of the FTSE China 50 Index. The fund provides geared exposure to the 50 largest Chinese stocks traded in Hong Kong, making it a suitable instrument for traders who want an aggressive short-term bullish bet on Sino equities. Top weightings in the ETF's basket include multinational conglomerate Tencent Holdings Limited (TCEHY) at 9.18%, China Construction Bank Corporation (CICHY) at 9.13%, and Ping An Insurance (Group) Company of China Ltd. (PNGAY) at 7.67%. Ample daily volume of more than 2 million shares and a narrow 0.06% average spread keep trading costs manageable. The fund's 1.52% management fee isn't cheap but has minimal impact on short holding periods. YINN has net assets of $319 million, offers a 2.20% dividend yield, and is trading down 3.44% year to date (YTD) as of Oct. 1, 2019.
The ETF's share price has traded within a descending channel over the past six months to establish clear support and resistance areas on the chart. As China's National Day celebrations continue, traders should watch for moves to the pattern's top or bottom trendline for opportunities. If the price falls to the lower trendline, consider going long and setting a profit target near the channel's opposing side. Alternatively, look to open a short position if price rallies into the upper trendline and book profits on a retracement back down to the pattern's lower support line. For trades in either direction, place stop orders about $1 from entry.
Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR)
With assets under management (AUM) of $1.35 billion, the Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) seeks investment results that correspond to the performance of the CSI 300 Index. The fund comprises 300 liquid Chinese stocks traded on the Shanghai and Shenzhen exchanges, providing U.S. investors with access to exclusive China A-shares. ASHR, which has an expense ratio of 0.66%, takes a significant tilt toward financials, with the ETF allocating roughly 40% of its portfolio to the sector. Ping An Insurance commands the top stock weighting at 7.68%, followed by partially state-owned food and beverage giant Kweichow Moutai Co., Ltd. (600519.SS) at 4.70% and China Merchants Bank Co., Ltd. (CIHKY) at 2.91%. With over 4 million shares changing hands daily coupled with a narrow 0.04% spread, the ETF meets the requirements of active traders. As of Oct. 1, 2019, ASHR yields 1.07% and has returned nearly 25% on the year.
ASHR shares trended over 40% higher between January and early April but have remained entrenched within a trading range since. Over the past two weeks, the fund's price has retraced to the $27 level, which finds a confluence of support from the 200-day simple moving average (SMA) and an uptrend line that forms part of a broad symmetrical triangle. Those who buy here should look for a retest of the 2019 YTD high at $30.79 and manage risk with a stop-loss order situated below the discussed support area.
iShares MSCI Hong Kong ETF (EWH)
The iShares MSCI Hong Kong ETF (EWH) has an objective to deliver returns similar to the MSCI Hong Kong Index. Its benchmark covers 85% of firms listed on the Hong Kong Stock Exchange (HKSE) while taking a sizable sector lean toward financials (67.46%). Notable companies in the ETF's basket of 48 holdings include AIA Group Limited (AAGIY), Hong Kong Exchanges and Clearing Limited (HKXCY), and CK Hutchison Holdings Limited (CKHUY). The massive $1.42 billion fund turns over roughly 7 million shares per day on an average penny spread and charges a competitive 0.48% management fee. As of Oct. 1, 2019, the ETF yields a respectable 3.13% but has only eked out a meager 2.64% YTD gain.
A descending channel, similar to the one on YINN's chart, has played out since early May. The 50-day SMA crossed below the 200-day SMA earlier this month in what technical analysts refer to as a bearish "death cross." Therefore, traders should expect further selling but look for opportunities to initiate long positions near crucial support at $21.50 – an area where the fund may find buyers near the channel pattern's lower trendline. Those who trade this support zone should think about setting a take-profit order near the channel's top trendline at $25 and placing stops under $21.