ETF Database Trends January 7: China, Volatility and Panic Across the Board

The RMB Chinese Yuan ETF List has been trending this past week with a traffic spike of 561%. The Chinese yuan has been in a decline for more than a month now and is in sharper decline this week. Much of the volatility in the markets this week has to do with the devaluation of the currency. Investors are confused as to what the central bank is trying to achieve. The confusion is a result of a lack of communication by policy makers in China. Furthermore, some analysts are saying that this volatility has a lot to do with the yuan becoming a global reserve currency in October of this year.

The uncertainty is expected to continue until PBOC announces its intentions and its intervention measures with the yuan. More on the Chinese stock market and the panic selling in the next section.

Major pages relating to China have also been trending. These include our Non-Leveraged China ETF List and our China Equities ETFs page. The pages saw increases of traffic of 319% and 272%, respectively, from a week ago.

China introduced a new stock market circuit breaker on January 1 of this year that stops trading for 15 minutes if the Shanghai Composite drops by 5%. If it drops by 7%, trading ceases for the rest of the day. The Chinese markets have not taken well to the circuit breaker and to add to the worries, the Caixin Manufacturing PMI released this past Sunday showed a worse-than-expected figure of 48.2; the consensus was 48.9. Manufacturing accounts for about a third of China’s GDP, which is a huge portion by any standard.

Following the news, the Chinese equities market was down as the Shanghai Composite crashed nearly 7% before it triggered a circuit breaker which ceased trading for the rest of the day. On Thursday, a similar downturn of 7% triggered another circuit breaker half an hour after the Shanghai Stock Exchange began trading for the day. This downward pressure has to do with negative sentiment and panic selling among investors in China.

These events have caused and will continue to cause panic in all major global markets. Now more than ever we live in a global economy and any change on the other side of the Earth is sure to send ripple effects across the rest of the world. We expect volatility to be high for the coming days as this situation is far from over and advise investors to hedge their equity and high-yield bond exposure (the widening yields in the bond market is another can of worms).

Investors are searching for information on the volatility index, VIX, and ways to play with ETFs and ETNs. As such, two of our evergreen articles on VIX exchange-traded products have been trending this week. Our Shorting the VIX and VIX ETF Options articles both saw traffic increases of 169% and 136%, respectively, this week. VIX is the volatility index of the S&P 500 and ETF pages on the subject tend to trend quite a bit during market turmoil. The two trending articles have great explanations on the subject of the VIX and ways to play it.

Since midway through December, the VIX has increased in value by about 50%. There’s a clear pattern in the chart that suggests that times have become much more volatile since the August sell-off.

We are living in a world that’s becoming more and more uncertain as global changes are happening extremely fast. Things are changing faster than at any other time in history, and the world is more interconnected now than ever before. Hence the reason that China’s market crash this week is causing downward pressure in the U.S. markets as well. Until things cool off in China, the volatility index and global uncertainty won’t stop.

As investors try and find ways to invest in this harsh trading environment, some look to ETFs with inverse equity exposure. Our Inverse Equities ETFs page has seen traffic spike by 140% this week as the uncertainty in China and the Middle East heat up.

Since we discussed the Chinese situation in the previous sections, it’s time to have a look at other world developments, such as the conflict in the Middle East. Iran accused Saudi Arabia of damaging its embassy with warplane attacks in Sanaa, Yemen’s capital city. Later reports revealed that only the vicinity had been damaged and not the embassy building itself. Although this may seem minor, further conflict in the Middle East causes more uncertainty in the markets which leads to equity declines.

The most famous inverse equities ETF is the ProShares Short S&P 500 (SH A+) ETF, which tracks the inverse performance of the S&P 500 Index. Given the recent negative sentiment in the market, this ETF has done really well this month and did especially well this past week. As selling pressures continue due to China and global uncertainties, inverse equity ETFs, such as SH, are great ways to gain bearish exposure and to hedge equity positions.

Our Water Equities ETFs page has been trending with traffic spiking two weeks ago and continuing this week. Traffic went up 153% last week and an additional 42% this week.

The recent movie, “The Big Short,” about the 2008 meltdown may have something to do with this trend. To any person interested in investing and finding out more about what happened during the 2007 housing bubble in the U.S., we highly recommend the movie and/or The Big Short book. The way the movie relates to the water equities trend has to do with its last lines. One of the main characters, Dr. Michael Burry, is quoted as saying that all of his current investing has to do with one commodity: water. He happens to be a genius investor and saw the housing bubble from a mile away. Therefore, it’s only logical that if he mentions an investment theme, some investors listen and become more interested. What Dr. Burry meant is that water is always going to be in demand and he looks for indirect ways, through food and agriculture, for example, to invest in this precious commodity we take for granted.

The biggest trends this week had to do with China and global market volatility. China’s new circuit breakers halted trading twice this week, which further increased panic selling. This fueled volatility and declining equity values in domestic markets, which is why our VIX ETFs and inverse equities pages have been trending this week.

Another unique trend this week has to do with our water equities page, which may be related to the film “The Big Short”, which came out a couple of weeks ago. In it, the character Dr. Michael Burry shared his commodity investment theme for the coming future.

By analyzing how you, our valued readers, search our property each week, we hope to uncover important trends that will help you understand how the market is behaving so you can fine-tune your investment strategy. At the end of the week, we’ll share these trends, giving you better insight into the relevant market events that will allow you to make more valuable decisions for your portfolio.