The current market could be shifting towards favorable conditions for emerging markets (EM). It’s starting to show in the performance of the Direxion Daily MSCI Emerging Markets Bull 3X Shares (EDC), which is up 25% within the past month.
The overall market conditions in 2022 have certainly provided more than enough headwinds for EM. A stronger U.S. dollar and global inflation were enough to keep prospective EM traders away, but that could be changing.
The notion that inflation could be peaking means that prospects on a weaker dollar could be ahead, paving the way for EM strength. EM equity performance can be tied to the strength of the local currency, which falters when the greenback is exhibiting strength.
“Stocks, bonds and currencies from emerging economies stand to reap the rewards of a potential peak in the US dollar, according to Goldman Sachs Group Inc,” a Bloomberg article said.
“An almost 3% slump in a key gauge of the greenback since a high point in mid-May suggests a rebound in developing markets, which tend to outperform the rest of the world in the months following a cyclical dollar peak,” the article added further.
Triple the Exposure to EM
For tactical exposure to amplify gains or take a hedging position, traders can use EDC if they have a bullish bias towards emerging markets. The triple leverage should only be used by seasoned traders who understand the risk associated with these exchange traded products.
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 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-capitalization securities across 26 emerging market countries. Looking at its top holdings, the country allocation is skewed towards China, Taiwan, India, Brazil, and Korea (as of June 8).
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