Slow Growth, Demographics Could Push Emerging Markets Lower

2023 isn’t getting any easier for emerging markets (EM) traders. Downward pressure could continue for the EM space, which opens opportunities for bearish traders.

Rising interest rates have certainly taken a toll on EM assets over the past few years. It doesn’t help that fears of recession also loom as central banks deal with rate policy in order to keep inflation in check.

Now, per a Reuters report, more downward pressure could be ahead due to changing demographics. Growth prospects could be hampered due to a decline in labor as the working age population falls, according to BlackRock’s global head of emerging markets Amer Bisat.

“Demographics used to be a tailwind in emerging markets. Now, it’s a headwind,” Bisat said, noting that the global population growth over the last five years sparked a rise in labor growth and a rapid increase in gross domestic product for EM countries. In essence, what goes up (quickly) must eventually come down. “Labor growth in EM is already turning downward with the demographic dividend enjoyed by most EM countries running out of steam.”

Prior to the COVID-19 pandemic hitting in early 2020, EM countries were prospering. Since then, the growth rate has fallen from 8% in the pre-COVID years to just 3% after.

“The deceleration was not concentrated in just one or two areas but cut across all EM regions,” the report added.

Profit From EM Bearishness

Rather than use a margin account to short securities, Direxion Investments offers an easier way via inverse exchange traded funds (ETFs) that also feature leverage. In particular, to get thrice the exposure of EM equities, traders should consider the Direxion Daily MSCI Emerging Markets Bear 3X ETF (EDZ).

EDZ seeks daily investment results of 300% of the inverse of the daily performance of the MSCI Emerging Markets IndexSM. The fund invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index equal to at least 80% of the fund’s net assets.EDZ Chart

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