Coronavirus Concerns Opens Opportunities for US Equities, Developed Markets

Risk-off was the order of the day in Thursday’s trading session as investors sought safe haven assets and avoided emerging markets (EM) assets. The coronavirus continues to roil the markets with worries of the virus spreading globally and affecting growth, which caused the U.S. dollar to gain strength.

“There are more concerns about it (coronavirus) spreading in South Korea and Japan, while fears about supply chains continue to build,” said William Jackson, chief emerging markets economist at Capital Economics in London.

This creates opportunities for relative value trades that emphasize U.S. equities and developed markets strength.

Develop Market Strength

While emerging markets (EM) have been sensitive to the coronavirus outbreak, it creates an opportunity for developed markets strength via the Direxion MSCI Developed Over Emerging Markets ETF (NYSEArca: RWDE). RWDE provides a means to not only see developed markets perform well, but a way to access a convergence/catch-up in performance of DM relative to EM, a spread that has clearly widened over the past 6 months.

RWDE Features:

  • The index measures the performance of a portfolio that has 150% long exposure to the MSCI EAFE IMI Index (the “Long Component”) and 50% short exposure to the MSCI Emerging Markets IMI Index (the “Short Component”).
  • On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value.
  • In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express a developed over emerging investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

US Equities Strength

The major U.S. indexes appear to be sloughing off the effects of the coronavirus outbreak. All this creates an opportunity for investors to capitalize on the Direxion FTSE Russell US Over International ETF (NYSEArca: RWUI).

RWUI offers investors the ability to benefit not only from domestic U.S. markets potentially performing well but from their outperformance compared to international markets.

RWUI features:

  • Seeks investment results, before fees and expenses, that track the Russell 1000®/FTSE All-World ex-US 150/50 Net Spread Index (the “index”).
  • The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in securities that comprise the Long Component of the index or shares of ETFs on the Long Component of the index.
  • The index measures the performance of a portfolio that has 150% long exposure to the Russell 1000® Index (the “Long Component”) and 50% short exposure to the FTSE All-World ex-US Index (the “Short Component”).

For more relative market trends, visit our Relative Value Channel.