Does China's "Currency Manipulator" Status Put Emerging Markets in Play?

China was given the unfortunate moniker of “currency manipulator” by the U.S. Treasury after the department accused Beijing of influencing the exchange rate between the yuan and the U.S. dollar in order to gain an “unfair competitive advantage in international trade.” Does this latest development put emerging markets in play?

“Not to be outdone in the latest round of trade ‘discussions,’ the U.S. slapped a currency manipulator tag on China, placing it in the jolly good company of Switzerland, Germany, Taiwan, South Korea, Japan, Israel, Sweden and, until recently, the Czech Republic,” said EMQQ, an emerging markets fund, in an email.

The U.S.-China trade impasse has been heavily discounting a lot of U.S. equities with the latest round of sell-offs, but it’s also putting the red tag sale on emerging markets (EM). Funds like the Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ) have rebounded from May’s volatility to continue its stellar performance this year.

Combine the tariff battles with a cautious U.S. Federal Reserve set to cut interest rates, and it puts the EM space at an attractive valuation relative to its peers.In addition to broad-based exposure, exchange-traded funds (ETF) to consider also include those in EM that focus on specific sectors like technology.

While most investors might have been driven away by the losses in EM during much of 2018, savvy investors who were quick to see the opportunity viewed EM as a substantial markdown. From a fundamental standpoint, low price-to-earnings ratios in emerging markets ETFs have made them prime value plays as capital inflows continue in 2019.

EMQQ invests in companies with exposure to the ecommerce and Internet sectors in emerging markets. Purchasing EMQQ provides exposure to companies that are positioned to benefit as emerging economies mature, the consumer class expands, and their populations increases their utilization of the Internet and ECommerce.

Despite headwinds from increasingly negative rhetoric, the internet & ecommerce companies represented in EMQQ have continued to post positive fundamental growth with an average annual revenue growth rate of over 35% for the past nine years ending 2018, resulting in significant multiple contraction.

Thus far, EMQQ is up 11.53 percent this year, according to Yahoo! Finance performance numbers.

Leveraged Plays in EM

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.

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