Anticipation that less rate hikes should lead to a stronger dollar doesn’t quite bode well for international equities. Additionally, history is on the side of U.S. equities, paving the way for inverse exchange traded funds (ETFs) in international equities.
Since the financial crisis over a decade ago, U.S. equities have proven their mettle in terms of performance versus their international counterparts. Not only were they able to come back after the crisis, but they performed far better than international equities over time.
“U.S. equities have outperformed non-U.S. equities by a wide margin following the 2007-09 global financial crisis,” Morningstar mentioned. “Since the start of 2010, through December 2022, the Morningstar US Market Index gained 12.0% annualized, trouncing the Morningstar Global ex-U.S. Index’s 4.4%.”
The pain in the international equities space wasn’t relegated to emerging markets (EM). Developed markets have also trailed behind the U.S.
“While emerging markets hurt foreign stock returns the most, developed markets also didn’t impress,” Morningstar added, noting that the Morningstar Developed ex-U.S. Index grew 4.6% annualized within the same time frame, and the Morningstar Emerging Markets Index gained a paltry 3.0%. “Not only did the U.S. market achieve superior absolute returns, but it also did so with far lower volatility (as measured by standard deviation of returns) than those outside the U.S. That defies the textbook, capital asset pricing model logic that more risk should come with higher expected returns.”
A Pair of Inverse Options
If U.S. equities continue to reign supreme on the global market front, there are inverse options from Direxion Investments to consider. That’s particularly the case if the dollar regains strength, putting downward pressure on international equities, particularly emerging markets.
As such, traders can consider using the Daily FTSE China Bear 3X Shares (YANG ). China recently missed its gross domestic product expectations, so bearish traders could have the opportunity to pounce on this fund.
YANG seeks daily investment results equal to 300 percent of the inverse (or opposite) of the daily performance of the FTSE China 50 Index. The index consists of the 50 largest and most liquid public Chinese companies currently trading on the Hong Kong Stock Exchange.
While China presents a compelling option given its sheer size (thus, its dominance in the EM space), traders can also opt for a more broad EM option. For instance, there’s the Direxion Daily MSCI Emerging Markets Bear 3X ETF (EDZ ), which seeks daily investment results of 300% of the inverse of the daily performance of the MSCI Emerging Markets Index.
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