Can Emerging Markets Stage a 2022 Comeback? | ETF Trends

The pandemic and a rising dollar were more than enough to keep emerging markets from having a positive 2021 in a year of recovery.

“After their worst decade since the 1930s, emerging stock markets continued to underperform as a group in 2021, deepening the isolation that surrounds this sprawling asset class,” the Financial Times says. “So it will come as a surprise to many that eight of the top 10, and 13 of the top 20, best-performing markets of 2021 were in the developing world.”

Nonetheless, emerging markets may be quietly staging a comeback. As China looks to recover from its property crisis, it could lead the way for the rest of the EM countries to a better 2022 and beyond.

“Every region lagged behind the US, as investors poured money into American tech giants,” the Financial Times article adds further. “But, excluding China, emerging markets were up 10 per cent, in line with returns for the rest of the world outside the US. This may foreshadow a quiet comeback. Money tends to flow into the fastest-growing economies, notably those pulling away from the pack. Emerging economies grew more than five percentage points faster than developed ones at the peak of their boom in 2009. That lead had narrowed to one point by 2020, which goes a long way to explaining a dismal decade for emerging stock markets.”^MSEM Chart

A Triple Leveraged Opportunity

An opportunity for investors to trade an EM comeback with leverage is the Direxion Daily MSCI Emerging Markets Bull 3X Shares (EDC). With exposure to three times its index, only experienced investors should take a look at EDC.

EDC seeks daily investment results equal to 300% of the daily performance of the MSCI Emerging Markets IndexSM. The fund invests at least 80% of its net assets in financial instruments, such as swap agreements, 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-capitalization securities across a number of emerging market countries. Looking at its top holdings, there’s an obvious tilt towards China, with Taiwan and Korea rounding out its top three country allocations.

The fund is up 8% within the past month. If traders sense more bearishness ahead, they can look at the  Direxion Daily MSCI Emerging Markets Bear 3X ETF (EDZ).

EDC Chart

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