Despite Fund Managers Existing EM Assets, Opportunities Exist

Fund managers have been avoiding emerging markets (EM), especially when it comes to China. However, that doesn’t mean there aren’t opportunities that exist.

It also doesn’t help that the Federal Reserve may continue tightening monetary policy to get inflation under control. The expectation is that the regulator will eventually wind down its rate hikes, which should help alleviate dollar strength, which hurts emerging market currencies.

Until then, central banks in developed markets will dictate EM strength. Stubborn inflation could mean bullish EM investors could be left in the cold longer than expected.

“US and European moves to tame inflation have prompted investors to exit some riskier emerging assets this year,” a Bloomberg article explained. “But emerging markets’ recent efforts to defend their currencies have put a floor under declines,” noting that the recent consumer price index (CPI) rising during the month of August could mean more rate hikes to come through the rest of the year and potentially into 2024.

If more weakness is ahead for EM, an obvious play would be to follow the bears. As such, traders can use the Direxion Daily MSCI Emerging Markets Bear 3X ETF (EDZ), which seeks daily investment results of 300% of the inverse of the daily performance of the MSCI Emerging Markets Index.

Where Can Bulls Go in Emerging Markets?

EM bulls can also benefit, but they have to pick their spots strategically. One EM country to consider is India and specifically, via the Direxion Daily MSCI India Bull 2x Shares (INDL).

The fund seeks daily investment results equal to 200% of the performance of the MSCI India Index. That particular index measures the performance of the large- and mid-capitalization segments of the country’s equity market, covering approximately 85% of companies in India’s equity universe.

A recent CNBC report delved into the country’s strong growth trajectory, noting that “India’s stellar economic trajectory alongside strong forecasts for some Southeast Asian countries will be important drivers for global growth, said S&P Global Market Intelligence.” India is just one country in the EM region that should get strong investor consideration as China continues to work out its economic struggles.

“When we look over the next decade, we do expect Asia-Pacific to be the fastest growing region of the world economy,” said S&P Global’s Asia-Pacific chief economist Rajiv Biswas.

“A massive expansion on the way in the Indian economy, and also a very favorable outlook in Southeast Asia,  where we expect pretty strong growth to continue in some of the economies, notably Indonesia, Philippines, Vietnam, will be among the world’s fastest growing emerging markets over the decade ahead,” Biwas added.

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