Following what to many investors felt like an eternity of underperformance, emerging market stocks have come roaring back to life in 2025. As of August 15, the widely observed MSCI Emerging Markets Index was higher by 20.6% on a YTD basis, or nearly double the returns of the S&P 500.
Resurgent developing world equities are shining a light on a variety of ETFs, including the Direxion Daily MSCI Emerging Markets Bull 3X Shares (EDC). The fund, which is one of the pioneers in the geared emerging ETF space, attempts to deliver 300% of the daily performance of the aforementioned MSCI gauge.
Use of leverage makes EDC a short-term instrument, but the sparks needed to move the Direxion ETF could soon arrive. Those include the possibility the Federal Reserve will lower interest rates next month. Fed rate cuts have often benefited emerging market stocks, because those countries and some companies in those regions issue dollar-denominated debt. With Goldman Sachs forecasting three rate cuts by year end, traders could have multiple occasions on which to consider EDC.
More Momentum for EDC
For traders considering EDC, there’s much more to the story than U.S. monetary policy. For example, data indicates fund managers are embracing emerging market equities in significant fashion. The recent monthly poll by Bank of America confirms active managers are the most overweight developing world stocks that they’ve been since early 2023.
Some experts view that as a sign active managers are betting the dollar will continue weakening, which the Fed could play a part in, and that China’s economy will show signs of life. That’s pertinent because that country is the largest geographic exposure in the index EDC attempts to outpace day-to-day.
“Over the past decade, China has implemented proactive measures to mitigate external pressures. The Belt and Road Initiative has broadened access to global markets, diversifying trade partnerships, while the ‘dual circulation’ strategy has fortified domestic economic resilience,” according to T. Rowe Price. “Additionally, breakthroughs in critical technologies have eased supply‑side bottlenecks, and deleveraging in the financials and real estate sectors has reduced systemic risks, positioning China to better absorb potential shocks.”
Other factors could contribute to upside for EDC. Despite this year’s resurgence, emerging market stocks remain attractively valued relative to domestic equivalents. Secondly, after years of being overweight U.S. stocks, many investors — professional and retail — are looking to add some geographic diversity while still accessing growth. Developing economies check those boxes.
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