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Loving Latin American Leverage

ETF Professor

Heading into 2019, there was no shortage of market observers calling for a rebound in emerging markets stocks. After tumbling in 2018, the MSCI Emerging Markets Index is obliging bulls to start 2019 with a gain 2.23 percent as of Tuesday, Jan. 8th.

Accompanying the bullish emerging markets calls heading into 2019 was chatter that Asian markets would lead the group higher, but another region is strutting its stuff to start 2019.

What Happened

As of Tuesday, Jan. 8th, the S&P Latin America 40 Index was up 8.60 percent to start 2019, outpacing the MSCI Emerging Markets Index by a margin of nearly 4-to-1. Resurgent Latin American equities are boosting the fortunes of the Direxion Daily Latin America Bull 3X Shares (NYSE: LBJ).

LBJ looks to deliver triple the daily returns of the S&P Latin America 40 Index. That index features exposure to five Latin American markets: Brazil, Chile, Columbia, Mexico and Perú.

As has been widely reported, Brazil, Latin America's largest economy, is leading the region's equity market rebound to start 2019.

“The appointment of Chicago-trained economist as Brazil’s Finance Minister Paulo Guedes has been largely welcomed by markets,” said Morningstar in a recent note. “Pensions is one key area of reform he has already identified, with pension costs currently represent 55% of primary government spending. Tax cuts and simplifying the tax system is another area of focus.”

Why It's Important

LBJ's underlying index allocates 55.21 percent of its weight to Brazilian stocks, more than double the benchmark's weight to Mexico. Entering Wednesday, LBJ was sporting a month-to-date gain of 26.36 percent, making it Direxion's fifth-best leveraged bullish ETF this month.

Underscoring the strength in Latin American equities to start 2019 is the fact that among Direxion's top 10 leveraged bullish ETFs this month, in addition to LBJ, are the Direxion Daily MSCI Brazil Bull 3X Shares (NYSE: BRZU) and the Direxion Daily MSCI Mexico Bull 3X Shares (NYSE: MEXX). BRZU is one of the four Direxion leveraged long ETFs topping LBJ to this point in January.

What's Next

Data suggest traders have recently been fond of LBJ. For the five days ended Tuesday, Jan. 8th, LBJ's volume was more than 170 percent above the trailing 20-day average, according to issuer data.

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