The market landscape for emerging markets (EM) in 2022 has been skewed towards the downside amid rising global inflation and a stronger dollar. It doesn’t look like the pain will be subsiding soon, according to an EM forecast from S&P Global.
It looks like the same headwinds for EM in 2022 will likely continue in 2023. More central bank tightening, especially from the U.S. Federal Reserve, could mean continued upside in the dollar, which will feed into weakness for EM.
Additionally, S&P Global cited ongoing geopolitical tensions between Russia and Ukraine as a source of pain. Also, the COVID-19 pandemic continues to be a wild card as countries continue to battle an uptick in cases.
“S&P Global Ratings lowered its 2023 growth forecast for emerging economies on Tuesday (November 29), citing persistent pressures from the Russia-Ukraine conflict, a lingering COVID-19 pandemic and tight monetary policy conditions,” a Reuters article explained. “The ratings agency now projects real gross domestic product growth of 3.8% next year, down from its previous forecast of a 4.1% expansion.”
S&P Global noted that “The downward revision to growth comes from all EMs (emerging markets) excluding China and Saudi Arabia, with most economies poised to expand below their longer-run trend rates.” According to the Reuters article, S&P Global noted that inflation appears to be falling from its peak, still above central bank targets, which means continued restrictiveness for monetary policy.
Traders looking for opportunities can look at exchange traded funds (ETFs) that offer inverse exposure to emerging markets.
Playing Weakness in EM Assets
As more pressure is applied to EM assets, as mentioned, one way to play the bearishness is via inverse ETFs for tactical exposure. To further amplify gains, traders can access thrice the leverage of a normal fund using the Direxion Daily MSCI Emerging Markets Bear 3X ETF (EDZ).
EDZ seeks daily investment results of 300% of the inverse of the daily performance of the MSCI Emerging Markets IndexSM. The fund invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index equal to at least 80% of the fund’s net assets.
For more news, information, and strategy, visit the Leveraged & Inverse Channel.