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Some Traders Saw The Emerging Markets Decline Coming

February 14, 2018 5:02 pm
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Some Traders Saw The Emerging Markets Decline Coming

Emerging markets equities and exchange traded funds have been caught up in the drama recently afflicting U.S. stocks. For example, the widely followed MSCI Emerging Markets Index is down 7.5 percent over the past week while the FTSE China 50 Index, a gauge of the largest Chinese stocks trading in Hong Kong, is lower by 5.6 percent over that period.


Should emerging markets stocks continue faltering, it would not be surprising to see some traders flock to inverse ETFs, including the Direxion Daily MSCI Emerging Markets Bear 3X Shares (NYSE:EDZ). After jumping about 10 percent the Monday before the sell-off on volume that was roughly quadruple the daily average, the Direxion Daily MSCI Emerging Markets Bear 3X Shares sported a scintillating one-week gain of nearly 25 percent.


EDZ attempts to deliver triple the daily inverse returns of the MSCI Emerging Markets Index. The fund's bullish counterpart, the Direxion Daily MSCI Emerging Markets Bull 3X Shares (NYSE:EDC), was punished to the tune of 21.5 percent over that week.


Already Drawing A Crowd


Some traders were not surprised by the recent bullishness surrounding the bearish EDZ. For the five days ended Feb. 2nd, volume in the triple-leveraged inverse ETF was 73.6 percent higher than the trailing 20-day average, according to Direxion data.


Inflows accompanied that large volume increase. Over the past month, traders have been adding an average of almost $540,000 to the bearish EDZ, according to Direxion data. Interestingly, EDC's average daily inflows over the same period are over $1.8 million. 


Emerging markets stocks are consistently more volatile than U.S. equities, reminding traders that products like EDC and EDZ are best used as short-term trades confined to a day or two. Just look at the punishment suffered by traders that held EDC for the last five days.


China, Too


The Direxion Daily FTSE China Bear 3X Shares (NYSE:YANG), which seeks to deliver triple the daily inverse returns of the FTSE China 50 Index, is also surging and drawing acclaim from traders.


YANG jumped as high as 50 percent from its February low during the spike in volatility and is currently up 25 percent for the month.


Traders were prepared for YANG's recent jump as well as the bearish China fund averaged daily inflows of nearly $419,000 over the past month, according to issuer data.


Related Links:


A New Way To View EM Bonds. 


A Nifty Idea For International Dividends. 

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