Emerging markets (EM) bulls may have to continue playing the waiting game after a rough end to the third quarter. Thankfully, leveraged exchange traded funds (ETFs) can keep traders in the game.
Stubborn and sticky inflation has been feeding into the higher-for-longer narrative the U.S. Federal Reserve has been adopting as of late. Rate hikes continue to keep the dollar elevated, which puts EM assets in a precarious position.
To add to that wall of worry is China’s stumbling this year. 2023 started off well for the second largest economy, but lingering real estate issues have thrown a speed bump at its growth trajectory.
“Emerging markets ended a volatile quarter with China’s plunging economy, spiking US yields and rising oil prices sparking the worst decline in stocks in a year,” Bloomberg reported.
In addition, as also reported by Bloomberg, EM equities “saw a $470 billion wipe-out, currencies posted back-to-back quarterly losses and sovereign-risk premiums hovered at a three-month high,” tamping down hopes of EM assets roaring back in 2023. That is certainly not welcome news for bullish traders in EM.
“It’s now clear that expectations at the start of the year for a rally in Chinese markets and outperformance by emerging markets over developed markets have not panned out,” the report added.
^MSEM data by YCharts
2 Trading Opportunities for Emerging Markets
As mentioned earlier, traders looking to play broad exposure to EM can be a bull or bear with leveraged ETFs from Direxion Investments. If the downward trend persists, bearish traders can look to the Direxion Daily MSCI Emerging Markets Bear 3X ETF (EDZ), which seeks daily investment results equal to 300% of the inverse of the daily performance of the MSCI Emerging Markets Index.
On the other hand, when EM does eventually stage a comeback, bulls will want to use the Direxion Daily MSCI Emerging Markets Bull 3X Shares (EDC). The fund takes the opposite direction of EDZ, by seeking daily investment results equal to 300% of the inverse performance of the previously mentioned MSCI Emerging Markets Index.
Despite a rough third quarter, EM have fared well thus far given its macroeconomic headwinds. This could give bulls and EDC some hope moving forward, as all eyes are on the Fed to see if it starts implementing rate cuts.
“Emerging markets have done surprisingly well this year, despite what would normally be overwhelming headwinds such as high inflation, interest-rate increases by the U.S. Federal Reserve and a global economic slowdown,” the Wall Street Journal reported.
Both EDZ and EDC offer diversification in terms of country exposure as well as market cap size. The index represents the performance of large- and mid-capitalization securities across 26 emerging market countries.
For more news and information, visit the Leveraged & Inverse Channel.
Originally published on ETFTrends.com on October 2, 2023.
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