It’s been a rocky ride for emerging markets (EM) assets in 2019 thanks to a U.S.-China trade war that appeared to be on its way to a resolution, only to be derailed by more back-and-forth tariffs and then back to a “phase one” agreement. Either way, EM appears to be ending the year on a positive note.
“Emerging markets are about to end a turbulent year in which U.S.-China trade tensions dominated headlines and central banks around the world came to rescue the global economy from falling into a recession,” a Bloomberg report noted. “Stocks, currencies and local-currency sovereign bonds of developing economies are all eking out gains for 2019 after last year’s biggest annual losses in three years. The Vanguard FTSE emerging-markets ETF has gained around 16% this year.”
“It was one of those weird years where the economic situation was worse than expected from the beginning of this year,” said Michael Kushma, the chief investment officer for global fixed income in New York at Morgan Stanley Investment Management. “That makes investors worried that we have all the good news priced in and that next year it’s going to be much more challenging.”
EM Macro Trend Trades
For investors looking for the continued upside in emerging market assets, whether driven by a weakening USD or continued developments around trade, the Direxion MSCI Emerging Over Developed Markets ETF (NYSEArca: RWED) offers them the ability to benefit not only from emerging markets potentially performing well, but from emerging markets outperforming developed markets.
RWED seeks investment results that track the MSCI Emerging Markets IMI – EAFE IMI 150/50 Return Spread Index. The Index measures the performance of a portfolio that has 150 percent long exposure to the MSCI Emerging Markets IMI Index and 50 percent short exposure to the MSCI EAFE IMI Index.
On a monthly basis, the Index will re-balance 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 an emerging over developed investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.
On the other side of the trade is 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 seeks investment results equal to the Emerging Markets IMI 150/50 Return Spread Index, which measures the performance of a portfolio that has 150% long exposure to the MSCI EAFE IMI Index and 50% short exposure to the MSCI Emerging Markets IMI Index.
For more relative market trends, visit our Relative Value Channel.