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What’s Your Emerging Markets Position? ETFs to Play Both Sides

Ben Hernandez
·2 min read

This article was originally published on ETFTrends.com.

Looking at the 10-year history of the MSCI Emerging Markets index reveals a number of peaks and valleys over the years. While a long-term investor with a low risk tolerance might look the other way, the index spells opportunity for traders to play the volatility on both sides with the Direxion Daily MSCI Emerging Markets Bull 3X Shares (EDC) and Direxion Daily MSCI Emerging Markets Bear 3X ETF (EDZ).

After reaching a peak in early 2018, the index subsequently fell. It has tumbled even further once the Covid-19 pandemic took hold of the markets in 2020. Now, EM is back in big way with the index spiking over 50% since May 25, 2020.

^MSEM Chart
^MSEM Chart

This gives bulls the opportunity to play EDC, which seeks daily investment results equal to 300% of the daily performance of the MSCI Emerging Markets Index. The index is designed to represent the performance of large- and mid-capitalizations securities across 26 emerging market countries.

UBS Is Bullish on Emerging Markets

Per a Bloomberg article, "UBS Wealth Management has shifted its preference in equities to developing countries, which are more sensitive to global growth and are cheaper than developed markets. MSCI Inc.’s emerging-market index trades at 16 times expected earnings in the next 12 months, well below a P/E ratio of 22 times for the S&P 500 and less than the 17 times for the Stoxx Europe 600."

“This is now a sweet spot for emerging markets,” Michael Bolliger, the unit’s chief investment officer for global emerging markets, said in an interview. “And looking at valuation, there are parts of the market where people increasingly worry about things getting expensive. EM is definitely not ticking these boxes. Particularly outside of Asia, it is lagging on the valuation side, which is another plus.”

The MSCI Emerging Markets index is still slightly above oversold levels, with a 0.375 reading in the Stochastic Relative Strength Index (StochRSI).

^MSEM Chart
^MSEM Chart

Bearish traders looking to pounce can use EDZ, which seeks daily investment results of 300% of the inverse of the daily performance of the MSCI Emerging Markets Index. The fund invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index equal to at least 80% of the fund’s net assets.

For more news and information, visit the Leveraged & Inverse Channel.

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