Market Overview

Get Acquainted With These Bearish EM ETFs Now (BZQ, INDZ, RUSS)

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Another round of troubling U.S. economic data and another grizzly flash reading on China's Purchasing Managers Index combined to sink global stocks today. Those data points serve as stark reminders that growth is slowing all over the world, even in alluring emerging markets.

Certainly, there are opportunities to be had in developing nations for patient investors. However, being patient right now could easily mean waiting on the sidelines for better pricing with traditional long emerging markets ETFs, while profiting on the downside with inverse funds.

The silver lining for emerging markets investors is that the most vulnerable countries and corresponding ETFs have become increasingly easy to spot. Fortunately, so are the bearish equivalents. Just look for the few ETFs that finished in the green today.

Direxion Daily Russia Bear 3X Shares (NYSE: RUSS) Yes, Russian equities and the ETFs that track those stocks are home to compelling valuations. However, the valuations just keep falling as oil prices trade lower.

The Russian stock market has fallen 32 percent since last July, double the drop in Brent crude, according to EmergingMoney.com.

EmergingMoney does highlight a potential long-term bull case for state-run Russian energy giant Gazprom that includes development of the Shtokman field. The thesis is valid and one for investors interested in ETFs such as the Market Vectors Russia ETF (NYSE: RSX), where Gazprom is the top holding, to stay abreast of. Still, investors with a long-term view of Russia should consider hedging those bets with short-term trades in the highly volatile Direxion Daily Russia Bear 3X Shares. RUSS has surged almost 80 percent in the past three months while RSX has lost 22.2 percent.

Direxion Daily India Bear 3X Shares (NYSE: INDZ) It is only slight hyperbole to say no one is bullish on Indian equities and ETFs right now. With rising deficits, slowing growth and the real possibility of losing its investment-grade status, Asia's third-largest economy is not giving investors many reasons to cheer.

The surprise regarding the Direxion Daily India Bear 3X Shares is not that the ETF has jumped almost 40 percent in the past three months. It is that the fund still remains thinly traded with average daily volume of less than 15,000 shares per day.

ProShares UltraShort MSCI Brazil (NYSE: BZQ) The case for the ProShares UltraShort MSCI Brazil can be validated on multiple fronts. First, there are the aforementioned falling oil prices. Slumping oil prices equal one more reason for short sellers to punish Petrobras (NYSE: PBR), which is a major holding in the iShares MSCI Brazil Index Fund (NYSE: EWZ).

Then, there is Brazil's inflation problem, slowing growth, a faltering real and a political environment that is barely better than Argentina's when it comes to embracing foreign companies. China's economic woes loom large for Brazil as well because the world's second-largest economy is Brazil's biggest trading partner.

Ultimately there are more good reasons to own BZQ than EWZ in the current market environment.

For more on emerging markets ETFs, click here.

Posted-In: Long Ideas News Short Ideas Specialty ETFs Emerging Market ETFs Futures Commodities Events Best of Benzinga

 

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