China Stimulus Could Stimulate EM Assets and This ETF

The macroeconomic environment continues to be more conducive to emerging markets, giving investors confidence to dip back into EM assets once again. The biggest single-country mover of EM will certainly continue to be China. Additional stimulus from its government should help stimulate EM assets as a whole.

In the EM space, China is ideally the tide that lifts all boats, and the country has had its fair share of challenges the last few years. However, its government has been doing what it can to revitalize economic growth, making for a potential comeback in Chinese equities after continuing to trend lower in 2023. Investors may be looking to take advantage of depressed equity prices in the country, making them a strong value proposition. Of course, that would be the long-term play, and short-term traders may want to ensure they’re not catching a falling knife.

“Emerging-market stocks gained Tuesday (January 23) as shares in Hong Kong rebounded from a 14-month low on speculation of a new stimulus package in China, while currencies pared earlier losses,” reported Bloomberg.

“MSCI’s index for developing-nation equities rose as much as 0.9% before trimming gains to close 0.6% higher,” the report added. “The equivalent gauge for emerging currencies rose 0.1%, with South Africa’s rand and the Brazilian real leading the advance.”

Investors looking to add EM exposure can look toward the direction of the MSCI Emerging Markets Index. It gives a broad representation of the performance of EM equities in totality. Short-term traders can also use the index if they sense potential bullishness to come as the Federal Reserve eventually loosens monetary policy and thus, the greenback retreats.

Triple Leverage EM Exposure

Traders who want to add leverage to broad EM exposure should consider the Direxion Daily MSCI Emerging Markets Bull 3X Shares (EDC). The fund seeks daily investment results equal to 300% of the inverse performance of the aforementioned MSCI Emerging Markets Index. The index is designed to represent the performance of large- and midcap securities across emerging markets countries.

Furthermore, the index offers deeply diversified exposure, with 24 countries and over 1,300 constituents. As such, EDC offers traders all-encompassing exposure if their bullish notions are more broad as opposed to looking to make a play on one specific country. This is helpful when macroeconomic conditions favor EM assets such as a decreasing dollar.

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