How Investors Lost 89% Betting Against China — Even When Their Prediction Was Correct

If you wanted to short China at lunch and be flat by the closing bell, Direxion Daily FTSE China Bear 3X Shares (NYSEARCA:YANG) is the tool. The fund aims to deliver three times the daily inverse return of the FTSE China 50 Index, the basket of large Chinese names that trade in Hong Kong. It is built with swaps and other derivatives, resets every single trading day, and is intended for traders who think today’s China headline gets worse before tomorrow’s open.

The numbers tell you exactly what kind of instrument this is. YANG closed near $28 today. Ten years ago, the same share was worth roughly $4,700 on a split-adjusted basis. That is a 99% evaporation, which is the math of daily-reset leverage doing exactly what the prospectus says it will do.

What YANG Is Built To Do

The intended job is narrow. YANG is a tactical hedge or a directional bet on a single idea, that large Chinese equities will fall, today. Think property developer headlines, a surprise Beijing crackdown on a tech platform, fresh tariff threats, a soft GDP print, or a weak yuan fix. If any of those break before the close, YANG should jump roughly three times the percentage drop in the FTSE China 50 that day.

The return engine runs on derivatives, with no underlying business. YANG holds total return swaps with bank counterparties that pay the fund three times the inverse daily move of the index. Each evening, those swaps reset to the new notional value. That daily reset is the entire personality of the product. It guarantees the leverage on any single day, and it guarantees that the longer you hold, the further your return will drift from a simple -3x calculation against any starting point.

Does The Math Actually Work?

Compare YANG to its mirror. The iShares China Large-Cap ETF (NYSEARCA:FXI | FXI Price Prediction) tracks the same FTSE China 50 long. Over the past year, FXI gained 7%. A naive -3x bet should have produced about a 22% loss. YANG’s actual one-year return was -25%. Close, but worse, because volatility decay grinds even a clean trend.

Stretch the window and the picture becomes hostile. Over five years FXI is down 11%, an environment that should have rewarded a China bear. YANG returned -89% over that same span. The China thesis was right, and the leveraged inverse ETF still destroyed nearly all of the capital invested in it. The 10-year picture is starker still, with FXI up 45% while YANG quietly lost 99% of its value.

The recent tape illustrates how quickly the trade reverses. YANG is up 11% year to date because FXI is down 5% in 2026. Yet over the past month YANG fell 8% while FXI rose 3%. That is the entire user manual on a single page.

The Tradeoffs You Sign Up For

Three constraints define the holding experience.

1. Volatility decay is structural. When the underlying chops sideways, daily compounding of -3x returns mathematically erodes value. A long stretch of zigzag headlines out of Beijing can hurt YANG even when the index ends roughly flat.
2. Path dependency punishes patience. Being directionally right about China over five years was not enough. You also had to be right about the sequence of moves and the size of intraday swings. Most traders cannot manage both.
3. Counterparty and concentration risk sit underneath. The fund’s exposure runs through swap agreements tied to a 50-stock index dominated by a handful of internet, financial, and energy giants. You are taking bank credit risk to short a narrow slice of one country’s market.

YANG fits as a one- to three-day tactical short for traders who already have a specific China catalyst in mind and a stop-loss discipline they actually obey, but anyone treating it as a buy-and-hold hedge against China risk will watch the position decay regardless of who is right about Beijing.