Emerging markets can offer traders the ability to play off strength outside U.S. borders. With leveraged ETFs, there are both bullish and bearish opportunities to ponder.
Because the strength of EM can often be tied to their local currency, upside will hinge on what the greenback does. Right now, the prospect of rate cuts bodes well for EM currencies. But a sudden pivot could call for a reversal.
"Emerging-market stocks declined and currencies trimmed gains as hawkish remarks from Federal Reserve officials and stronger-than-expected US consumer confidence hurt risk appetite," reported Bloomberg.
Of course, a stronger dollar from a higher-for-longer interest rate environment could hurt EM equities in the interim. That said, consider using the Direxion Daily MSCI Emerging Markets Bear 3X ETF (EDZ) as a hedge. The fund seeks daily investment results equal to 300% of the inverse of the daily performance of the MSCI Emerging Markets Index.
India Stands Out
India has been a prime play in the EM space, offering prospective investors an opportunity to benefit from its growing economy. Certain business news outlets are already forecasting that the country's economy could grow to be the third largest in just the new few years.
Part of that growth has to do with the growing population of India. That, in effect, could have a profound impact on investors as Bloomberg noted.
"Emerging markets such as India and Indonesia, whose populations are growing at a solid pace, stand to benefit as demographics begin to play a bigger role in investment decisions, according to Fidelity International and BlackRock Investment Institute," reported Bloomberg.
Consider the Direxion Daily MSCI India Bull 2x ETF (INDL). It seeks daily investment results equal to 200% of the performance of the MSCI India Index. That index measures the performance of the large- and midcap segments of the country's equity market.
China Continues Recovery
Of course, it's difficult to discuss EM without also mentioning China. Chinese equities have been on the rise as the second largest economy continues to take strides in righting its economic ship, making funds like the Direxion Daily FTSE China Bull 3X ETF (YINN) worth looking at.
The International Monetary Fund is forecasting more growth after a better-than-expected first quarter. Still seen as a contrarian play, China still has much work to do as it continues to muddle through the aftereffects of a real estate development crisis a few years ago.
YINN tracks the FTSE China 50 Index (TXIN0UNU) with 300% exposure. This index consists of China’s 50 largest and most liquid public companies currently trading on the Hong Kong Stock Exchange as determined by FTSE/Russell.
Alternatively, traders bullish on the prospect of overall emerging markets gaining strength but still wary of broad-based exposure that includes China can consider the Direxion Daily MSCI Emerging Markets ex China Bull 2X Shares (XXCH). The fund offers twice the daily performance of the MSCI Emerging Markets ex China Index.
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