Fixed income investors have less and less places to look for yield, especially in the coronavirus-stricken markets that are driving bond prices higher and conversely, yields lower. One place investors have been looking is overseas in emerging markets (EM) assets in spite of coronavirus fears.

However, the long-term impact of the coronavirus should not be ignored. As the number of infections outside of China are accelerating, it only fans the flame of fear as investors scramble to soak up safe haven assets, pushing yields on safe haven U.S. government bonds lower.

“The search for yield is supported by a perception that global yields will remain low for the foreseeable future,” said Anders Faergemann, a London-based senior portfolio manager at PineBridge Investments, which manages about $100 billion. “Yet, the resilience we have seen in EM hard-currency bonds — both sovereign and corporate — tells a story of continued support for the asset class and further capital inflows.”

China, however, will still be a prime EM mover as investors eye the latest economic events this week per a Bloomberg report:

  • China will report manufacturing and services data for February on Saturday, indicating the extent of the effects of the coronavirus
  • According to Bloomberg Economics, China regaining economic traction following the coronavirus oubreak, with the economy running at 50%-60% capacity in the week to Feb. 21 and the forecast is expected to jump from Feb. 24
  • China’s economy is likely to tick higher after the coronavirus is contained to exhibit a technically sound “V-shaped” recovery, according to a central bank senior official
  • The Chinese yuan will be more resilient versus EM currency the country’s policy makers look for ways to to slow decline
  • The Chinese yuan fell for a third straight day on Monday to touch its lowest level in more than two months

For investors looking for the continued upside in emerging market assets as the effects of the coronavirus weaken in China, 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.

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