Direxion's China-Focused CWEB ETF In Spotlight Amid Challenging Environment

Perhaps predictably, President Donald Trump's tariffs and subsequent trade wars against key economic partners contributed to a dour environment for consumers. However, it wouldn't be accurate to pin the blame on any one administration. With the fear trade running at full steam – as evidenced by the blistering rise of gold – it's apparent that the underlying challenges go beyond mere politics.

As things stand, investors seeking growth find themselves at a difficult juncture. Nevertheless, some adventurous market participants are turning to China for potential opportunities for capital appreciation. To be fair, the world's second-largest economy has incurred its own troubles to kickstart sentiment. Last year, Beijing attempted to kickstart its growth engine with stimulus packages to mixed results.

Nevertheless, Chinese leader Xi Jinping has expressed optimism about the Asian juggernaut's recovery prospects. Last December, Xi announced in a keynote speech that the Chinese economy was both stable and making progress. Furthermore, he stressed that economic, social and development goals and tasks were on course for successful implementation.

Xi's comments at the time were met with some reservations. While Morgan Stanley analysts noted the administration's commitment to stimulus – a tone that has been the most aggressive on the matter in a decade – they also acknowledged that execution may be a challenge.

Still, recent developments suggest that the China trade may hold a spark of credibility. Specifically, the price of copper just blew past record highs, thanks largely to stimulus optimism in China, and Beijing's efforts to drive growth are beginning to show in the actual data. This dynamic has positive implications for multiple industries, which in turn bodes well for the nation's consumers.

The Direxion ETF: Adding to the enthusiasm, China's economic growth – while acknowledging the turbulence – is being underpinned by household consumption. With retail sales continuing to expand on a year-over-year basis, this backdrop shines a spotlight on the Direxion Daily CSI China Internet Index Bull 2X Shares (NYSE:CWEB).

A leveraged exchange-traded fund, CWEB offers diversified exposure to China's most important internet businesses, including Tencent Holdings ADR (OTC:TCEHY), Alibaba Group Holding Ltd (NYSE:BABA) and JD.com Inc (NASDAQ:JD). With this ETF, speculators can wager on a basket of securities rather than an individual name.

An additional motivation to consider the China internet bull fund is the convenience factor. For speculators seeking leveraged bets, the options market tends to be the sole solution. With leveraged ETFs, however, investors can pick up shares (called units) much like buying equity in a public enterprise.

Despite the ease of buying leveraged ETFs, they do come with significant risks. Primarily, these financial instruments are much more volatile than traditional assets. Also, 2X ETFs are designed for exposure lasting no longer than one day. A hold longer than this recommended period may result in unpredictable performance relative to the underlying benchmark due to the daily compounding effect.

The CWEB ETF: While a choppy fund, the Direxion Daily CSI China ETF has been a strong performer overall in the past 52 weeks, gaining over 49%.

• Presently, the leveraged bull fund is trading above its 50-day and 200-day moving averages, demonstrating robust momentum.
• Between December and late February, CWEB charted a pattern reminiscent of a cup and handle, culminating in significant upside.
• It's possible that the choppy behavior since mid-February could be a consolidation cycle, building momentum prior to another big move.

Featured photo by 756crystal on Pixabay.