A Lower Dollar is Music to the Ears of Emerging Markets Bulls

Low interest rates are doing no favors for the U.S. dollar, which is music to the ears of emerging markets bulls. With the central bank not looking to raise interest rates anytime soon, the bulls could keep running.

“The U.S. dollar’s summer slide is widely seen as a boon for stocks, including emerging market equities,” a MarketWatch report noted. “The correlation between a falling dollar and gains for emerging market equities is relatively tight, said Nick Niziolek, co-chief investment officer and head of international and global strategies at Calamos Investments, in an interview.”

As the world looks to reopen following the effects of the coronavirus, emerging markets will certainly benefit from a rebound. The return to normal operations will need the help of government stimulus, which could be spurred further by a weaker dollar.

Per the report, “a weaker dollar allows emerging market countries more freedom to provide fiscal stimulus without fearing negative implications for their own economies. For instance, an emerging market government might feel more comfortable with fiscal easing if it’s currency is rising, dampening the potential for an inflationary shock.”


^DJFXCMD data by YCharts

ETF Options to Look At

For traders, leveraged opportunities within EM can be utilized with the Direxion Daily MSCI Emerging Markets Bull 3X Shares (NYSEArca: EDC) ETF. EDC seeks daily investment results, before fees and expenses, of 300 percent of the daily performance of the MSCI Emerging Markets Index.

The fund invests at least 80 percent of its net assets in financial instruments, such as swap agreements, and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. The index is designed to represent the performance of large- and mid-capitalizations securities across 24 emerging market countries.

With technology leading the way despite the Covid-19 pandemic, ETF investors can get exposure to tech and EM via funds like the Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ). EMQQ tracks an index of leading Internet and eCommerce companies serving Emerging Markets. It seeks to offer investors exposure to the growth of online consumption in the developing world.

EMQQ holdings operate in diverse markets such as India, China, Brazil, Turkey, Nigeria, and Indonesia, to name a few. To be included, the companies must derive their profits from Ecommerce or Internet activities and include search engines, online retail, social networking, online video, e-payments, online gaming, and online travel.

For more market trends, visit the Leveraged & Inverse Channel.