Higher-for-longer interest rates are causing bears to jump back into emerging markets (EM) as a stronger dollar continues to push back against a rally. The Direxion Daily MSCI Emerging Markets Bear 3X ETF (EDZ ) has been a beneficiary of the recent slump.
The largest EM economy, China, tried to resuscitate its growth with a recent rate cut. It’s just one of various measures the country is implementing to try and reverse the aftereffects of a real estate development crisis, but it may take more time.
Just a week ago, Bloomberg reported that EM stocks touched a five-week low “as China’s second monetary-easing move this week failed to soothe concern over the country’s economic slowdown.”
“MSCI Inc.’s benchmark for EM equities dropped for the ninth time in 10 days and is on track for its first monthly decline since January,” the report added. “Chinese stocks, both in Shanghai and Hong Kong, underpinned the losses on skepticism that stimulus measures will help to revive the world’s second-biggest economy.”
EDZ allows for 300% exposure to the inverse of the daily performance of the MSCI Emerging Markets Index. As such, the fund has been benefiting from the recent decline. Traders who want to concentrate on China-specific moves can also add inverse exposure with another Direxion Investments product.
China Bears Come Back
As mentioned, China’s move to ease monetary policy hasn’t made the profound impact in the short term on its economy just yet. It’s been about four years since Chinese consumers have seen rates at this level. But the question remains: Can it help in the long term?
“The People’s Bank of China said it cut its lending rate for one-year medium term policy loans by 20 basis points to 2.3%,” AP News reported. “That is the biggest rate cut since the world’s second-largest economy was slammed by the COVID-19 pandemic in 2020.”
In addition to rate cuts to jump-start its economy, the government is also introducing subsidies for electric vehicles to replace older combustion vehicles. Whether these measures can stem the tide is a wait-and-see affair. In the meantime, bears could be reentering the market following initial optimism at the beginning of the year.
If bears continue to sense opportunities, they may want to look at the Direxion Daily FTSE China Bear 3X Shares (YANG ). The fund gives traders tactical inverse exposure, allowing for 300% leverage in the FTSE China 50 Index.
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