The rise in emerging market volatility and pressures on the growth of those markets creates an opportunity for shorting them with this ETF.
Direxion Daily Emerging Markets Bear 3X ETF (EDZ)
from The National Investor
Direxion Daily Emerging Markets Bear 3X ETF (EDZ) is designed to provide daily results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the MSCI Emerging Markets Index. Typically, it uses a variety of financial instruments and both leveraged and unleveraged trading strategies to short this basket of emerging market indices.
The rationale starts with the fact that countries like China and Brazil, in particular, are seeing flagging growth. Indeed, Brazil seems to be slipping back into recession, and has had to inject cash into its system a few times lately. China’s imports of late have been shrinking; one reason for renewed pressure on such staples of its past economic growth such as iron ore, coal and copper.
Making all of this worse is the upward pressure on long term interest rates once more, as well as on the dollar. I think that the move higher in Treasury yields will be fleeting, even if the dollar’s move higher continues a bit longer. But more damage will be done, I feel, to non-U.S. markets; and in any event, they remain the safer “short” bets to the extent we dare to short anything.
Even without the rise in both the dollar and interest rates, most emerging markets are showing some cracks these days (and have again been beset by some outflows of capital.) There are renewed worries in particular over China; both its growth rate and ongoing debt issues. What we see as far as equity market corrections in the coming weeks will most likely be led by declines in emerging market indices; thus, I recommend you increase your allocations to the Direxion Emerging Markets Bear 3X ETF to 5% weighting for growth/aggressive accounts, and 3% for more conservative ones.
Chris Temple, The National Investor, www.nationalinvestor.com, 847-986-6320, September 10 and 22, 2014