A weakening greenback could put emerging markets (EM) in the green. The anticipation of Fed easing and a confluence of other factors can make the Direxion Daily MSCI Emerging Markets Bull 3X Shares (EDC ) an opportunistic play.
Tariffs stifled any impending rally market experts may have been forecasting for EM in 2025. But ongoing trade discussions between the U.S. and China could be a respite from volatility in the interim. The MSCI Emerging Market Index has already recovered from the April sell-off.
“The bilateral reduction in tariffs between the U.S. and China provides near-term relief for emerging markets (EM),” said S&P Global, mentioning that “associated reduction in risk aversion and volatility improves the financial markets backdrop for EM issuers.”
The anticipation of interest rate cuts is building. That should give bullish EM traders plenty to cheer about as a weaker dollar benefits EM economies. Furthermore, the U.S. Dollar Index DXY has been trending lower for much of the year, creating tailwinds for EM countries. When the dollar weakens, it gives investors incentives to search elsewhere for higher-yielding investments such as EM assets. That influx of investment from foreign capital adds further bullish momentum.
Wall Street traders are already upping the ante on their bets that EM strength can persist further. Hedge funds have also been looking to cash in on the EM trade as well. That EM strength is often exhibited by the performance of local currencies. Given this, EM currencies are already poised to exhibit their best first half in 16 years.
“Increasing momentum in the weaker dollar narrative and a still structurally elevated valuation for the dollar suggest there is much more room to go for EM local as an asset class,” said Chris Preece, a portfolio manager at Pictet. “Sure, there can be a pullback — but I don’t think we can say the move in FX has been over-extended.”
Simplicity in Trading EM
One of the benefits of EDC is its ability to give traders a simple, synthesized option to trade bullishness in EM. This is because one of the prevailing challenges with trading EM is the plethora of options available to the trader.
Because oftentimes the performance of EM is tied to the local currency, perhaps the forex market offers a “purer” play. Equities exposure is another option, but the concentration risk could be too much to bear. Furthermore, differing countries offer their own nuances, as each could be in varying stages of the economic cycle. EDC removes the guesswork of how to trade EM with an all-inclusive approach.
EDC tracks the MSCI Emerging Market Index, which represents the performance of large- and midcap securities across emerging market countries. The obvious kicker with EDC is its 3x leverage that gives traders the ability to maximize their profit potential.
As shown in the chart below, the profit advantage of EDC is visibly apparent when juxtaposed with the MSCI index it tracks. While this may be appealing, experienced traders should only use these products as appropriate.
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