A New ETF Lets You Take Advantage of China's Big Stock Selloff

NEW YORK (TheStreet) -- China's stock bubble finally appears to be bursting this week, and now investors can take advantage of the market selloff.

Not surprisingly, it's a bearish ETF that profits off market declines. It's called the Direxion Daily CSI 300 China A Share Bear 1x Shares (CHAD), and it debuted just this week on the New York Stock Exchange.

The Direxion ETF tracks the blue-chip China Stock Index 300, composed of 300 stocks that trade on either the Shanghai or Shenzhen exchanges. But because it's a bear fund, the ETF bets against those stocks, so the fund gains when the CSI falls.

On Friday, the CSI 300 plummeted 6% and ended the week down more than 9%, the index's worst performance in seven years. The Direxion China Bear ETF, meanwhile, was trading nearly 5% higher on Friday.

The risk with the CHAD ETF is that if the CSI 300 Index snaps back and rallies, the ETF will tumble. The CSI 300 Index has more than doubled in the past year, indicating that there have been plenty of days when it has climbed 2%, 3% or more. If those days return, the CHAD ETF will fall by the same amount.

Investors expecting such a rebound could look at the Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR), the largest China A-shares ETF trading in the U.S.

On the surface, the debut of a bearish China ETF seems like a risky proposition. After all, the top four ETFs in terms of year-to-date percentage gains -- and five of the top six -- are Chinese shares funds. But as this week has shown, mainland Chinese stocks can swiftly correct, and some investors are not waiting around for those declines to worsen.

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