The “phase one” U.S.-China trade deal is certainly causing traders to amp up the risk as they lock and load on the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), according to a Markets Insider report. The fund gathered $979 million in inflows on January 2, making it the largest single day influx of capital for the fund since 2016 based on Bloomberg data.

EEM seeks to track the investment results of the MSCI Emerging Markets Index. The index is designed to measure equity market performance in the global emerging markets, and will include large- and mid-capitalization companies that may change over time.

Fund objectives:

  • Exposure to large and mid-sized companies in emerging markets
  • Easy access to 800+ emerging market stocks
  • Use to diversify internationally and seek long-term growth

“Confidence is growing,” Mohit Bajaj, director of ETFs for WallachBeth Capital, told Bloomberg. “We are seeing optimism in China from trade deal anticipation.”

Tale of Two Halves in 2019

The start of 2019 looked like it would be a strong rebound from 2018, which saw EM funds beaten down by trade war news as the rhetoric from both nations hinted that an agreement was far-fetched from reality. The idea of a protracted trade war slashed gains achieved at the beginning of the year as investors flocked to safe havens like government debt in the second half of 2019.

That, of course, changed as news of a “phase one” agreement with China sparked a Santa Claus rally that benefitted equities—EM included.

“If you also look at times when it feels that trade may be resolved, or trade issues may be improved, you notice how sharply emerging markets rally,” Rashmi Gupta, a money manager at JPMorgan Chase Bank in New York, told Markets Insider in June.

The Macro EM Trade

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 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 an emerging over developed investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

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

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