Traders Miss Out On Chance To Profit From China A-Shares Snub

Markets Benzinga

MSCI Inc (MSCI)'s widely-awaited decision on whether or not to include China A-shares in its emerging markets benchmarks arrived after the close of U.S. markets Tuesday with the index provider again opting against elevating the stocks trading on mainland China to widely followed indexes such as the MSCI Emerging Markets Index.

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"International institutional investors clearly indicated that they would like to see further improvements in the accessibility of the China A shares market before its inclusion in the MSCI Emerging Markets Index. In keeping with its standard practice, MSCI will monitor the implementation of the recently announced policy changes and will seek feedback from market participants," said MSCI Managing Director Remy Briand in a statement.\

After-Hours Action

Predictably, U.S.-listed exchange traded funds tracking A-shares didn't take the news well. Although after-hours trading for ETFs is rarely as robust as it is for individual stocks, the Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR) sank 2.3 percent in Tuesday's after-hours session after rising during normal trading hours. ASHR is the largest A-shares ETF trading in New York.

Though it's not a massive amount of money, traders pumped $95.4 million into ASHR this month through Tuesday, apparently betting MSCI would opt to include A-shares in its developing world equity benchmarks.

Market participants polled by MSCI stressed the need for a period of observation to assess the effectiveness of the QFII quota allocation and capital mobility policy changes as well as the effectiveness of the new trading suspension on policies. The 20% monthly repatriation limit remains a significant hurdle for investors that may be faced with redemptions such as mutual funds and must be satisfactorily addressed, according to the index provider.

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Missed Profit

Many traders missed out on an opportunity to profit from the A-shares/MSCI disappointment with the Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD). CHAD, which has frequently been highlighted in this space, is the only inverse A-shares ETF trading in the U.S.

The Direxion offering is designed to deliver the daily inverse performance of the CSI 300 index, ASHR's underlying benchmark. CHAD rose nearly 2 percent in Tuesday's after-hours session.

If CHAD rallies Wednesday, some traders could regret glossing over the ETF prior to the MSCI decision. CHAD hauled in just $4.3 million this month through June 14. Sometimes bullish biases can prove costly.

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