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3 Leveraged Emerging Markets Traders Should Consider in Q1

ETF Professor

International stocks will again lag their U.S. rivals in 2019, but that could change in 2020. That means the stage could be set for marquee ex-US benchmarks, such as the MSCI Emerging Markets Index, to rally in the first quarter.

If an international equity market rally materializes in the first quarter, active traders may want to consider leveraged exchange-traded funds to capture added upside.

“International stocks are poised for a 2020 comeback to some degree, they’ve been beaten up due to lack of economic growth, strong dollar, trade war and other factors,” said Direxion Managing Director Sylvia Jablonski. “However, world banks began strong stimulus, and we are seeing some of the manufacturing hits and slowdown, relent. If we see a trade resolution, this further boosts the argument. While the US has outperformed International and EM for the past decade, with US valuations at all-time highs, investors would like to find some new ideas. Those may come in the form of broad-based international and emerging markets exposure, and also sector-specific, in places like China.”

With that in mind, here are a few leveraged emerging markets ETFs traders may want to consider at the start of the new year.

Direxion Daily MSCI Emerging Markets Bull 3X Shares (EDC)

The Direxion Daily MSCI Emerging Markets Bull 3X Shares (NYSE: EDC) looks to deliver triple the daily returns of the MSCI Emerging Markets Index. That index has recently shown signs of life, jumping almost 4% this month.

Recent data suggest fund managers have been stepping into developing world equities and there are other reasons to consider EDC for a quick trade in the first quarter.

“Accommodative fed and investors searching for yield might drive em stocks. Asia and India in particular are reinvesting into their respective economies,” said Jablonski. “Chinese stocks should benefit from china financial liberalization and increased weighting of A-shares in the MSCI Emerging Markets Index.”

Direxion Daily CSI China Internet Bull 2X Shares (CWEB)

The Direxion Daily CSI China Internet Index Bull 2X Shares (NYSE: CWEB) is the first leveraged ETF dedicated to Chinese internet stocks, making the fund a potentially potent play on an asset class that often delivers sizable returns even without leverage. CWEB attempts to deliver double the daily returns of the CSI Overseas China Internet Index.

CWEB is a play on Chinese consumer and technology trends, themes that should have some reduced near-term risk now that the U.S. and China have come to terms on Phase I of a trade pact.

“Automation and tech: China now has the biggest amount of installed robots – and the biggest R&D spend so the semiconductor, tech, AI and robotics space may grow- look to an ETF like CWEB that gives you access to companies like Alibaba that reflect consumer spending,” notes Jablonski.

Direxion Daily CSI 300 China A Share Bull 2X Shares (CHAU)

The Direxion Daily CSI 300 China A Share Bull 2X Shares (NYSE: CHAU), which seeks daily returns that are double those of the CSI 300 Index, could be an ideal play for traders looking to capitalize on Beijing's efforts to keep the domestic economy sturdy.

CHAU could prove increasingly relevant over the near-term because the Chinese government is never shy about propping up the economy there.

“Chinese government is likely to continue stimulus measures that boost assets,” said Jablonski. “Rate cutting is likely. Policy support rolled out at the end of 2018 is just starting to hit the economy and those measures include monetary policy easing, tax cuts and supply-side reforms. Also, as real-estate and development is experiencing a boom, we might see that trickle down to the economy. “

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