Weighing on the emerging markets, a strengthening U.S. dollar, which recently traded around a 14-year high, has diminished investor demand for foreign assets. As the Federal Reserve looks to increase rates three times in 2017, many traders anticipate the USD to keep appreciating against foreign currencies.
“I think lack of positive catalysts inside and out is what is keeping the investors sidelined,” Taye Shim, head of research at Daewoo Securities Indonesia, told Reuters. “They are still anticipating that the Fed’s (U.S. Federal Reserve) rate hike will trigger higher value of the U.S. dollar, going forward.”
Alternatively, investors can also hedge against a further pullback in the emerging markets through inverse ETF options. For instance, the ProShares Short MSCI Emerging Markets (NYSEArca: EUM) takes the inverse or -100% daily performance of the MSCI Emerging Markets Index, the benchmark to EEM. The ProShares UltraShort MSCI Emerging Markets (NYSEArca: EEV) follows the -2x or -200% daily performance of the Emerging Market Index. Additionally, the Direxion Daily Emerging Markets Bear 3x Shares (NYSEArca: EDZ) tracks the -3x or -300% performance of the benchmark. Over the past three months, EUM rose 7.4%, EEV gained 14.2% and EDZ jumped 20.6% while the MSCI Emerging Market Index declined 7.8%.
For more information on the developing economies, visit our emerging markets category.