Short Emerging Markets - EUM
Updated
Recommend Shorting Emerging Market - 
EUM
ProShares Short MSCI Emerging Markets seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the MSCI Emerging Markets Index®.
In Short EUM will rise as:
* YTD Developed Markets (DM) have outperformed Emerging Markets (EM)
* U.S is leading developed markets with 4.1% GDP growth in 2Q
* U.S Fed is on track to add interest rates 2x in 2H of 2018
* This will continue to pressure EM currencies and pull funds from EM
* China's RMB is poised to weaken as it steps back on deleveraging to support it's economy (meaning it will print more money)
*** Hong Kong's Hang Seng Index, has yet to reflect the true slowdown in China's physical economy ***
ProShares Short MSCI Emerging Markets
Top 10 index companies: Tencent 5.46%/Alibaba 4.09%/Samsung Electronics 3.84%/TSMC 3.34%/Naspers 2.13%/CCB 1.69%/Baidu 1.28%/China Mobile 1.04%/ICBC 0.99%/Ping An Insurance 0.92%
Index Geography: China 32.7%/Korea 14.57%/Taiwan 11.62%/India 8.61%/SA 6.55%/Brazil 5.83%/Russia 3.53%/Mexico 2.93%/Malaysia 2.33%/Others 11.23%
Within the MSCI Emerging Market Index - China, Korea, Taiwan and India collectively make up ~67.5% of the index. Let's take a look at their currency and market performance YTD:
USD/RMB YTD -4.9% | SHCOMP -13% | SZCOMP -16.96% | HSI -4.46%
USD/KRW YTD -4.8% | KOSPI -6.98%
USD/TWD YTD -3.23% | TPEX -6.91%
USD/INR YTD -7.5% | Nifty 50 +7.37%
With the exception of India (which has no company in the "Top 10") most of the major markets for the MSCI emerging markets index have had a pretty bad year. China went thru a round of deleveraging while the Korea and Taiwan which have some very good tech companies have been heavily hurt by the caution within the tech supply chain / trade war / typical slowdown in economy as we approach end of credit cycle.
Of the "top 10 index companies" half are listed in Hong Kong (Tencent / CCB H / China Mobile / ICBC H / PingAn H) with a weighting of ~10% of the entire index. With RMB non deliverable forwards in 2019 priced at USD/RMB 7.3-7.4 in 3Q2019, the market clearly has expectation of a prolonged RMB depreciation which would negatively affect the reported earnings of said companies. Combined with, slowing Chinese macro data figures:
* July PMI 51.2 (actual) vs 51.3 (expected) | June PMI 51.5
* China 2Q2018 GDP Growth of 6.7% vs 1Q2018 GDP Growth of 6.8% (if you even trust the numbers)
I believe the current price of around $18.30-$18.50 is a good area to accumulate this as a long term trend as the U.S dollar will continue to be more liked as the Fed goes thru with it's normalization, while Chinese RMB and other EM currency will deflate.
EUMProShares Short MSCI Emerging Markets seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the MSCI Emerging Markets Index®.
In Short EUM will rise as:
* YTD Developed Markets (DM) have outperformed Emerging Markets (EM)
* U.S is leading developed markets with 4.1% GDP growth in 2Q
* U.S Fed is on track to add interest rates 2x in 2H of 2018
* This will continue to pressure EM currencies and pull funds from EM
* China's RMB is poised to weaken as it steps back on deleveraging to support it's economy (meaning it will print more money)
*** Hong Kong's Hang Seng Index, has yet to reflect the true slowdown in China's physical economy ***
ProShares Short MSCI Emerging Markets
Top 10 index companies: Tencent 5.46%/Alibaba 4.09%/Samsung Electronics 3.84%/TSMC 3.34%/Naspers 2.13%/CCB 1.69%/Baidu 1.28%/China Mobile 1.04%/ICBC 0.99%/Ping An Insurance 0.92%
Index Geography: China 32.7%/Korea 14.57%/Taiwan 11.62%/India 8.61%/SA 6.55%/Brazil 5.83%/Russia 3.53%/Mexico 2.93%/Malaysia 2.33%/Others 11.23%
Within the MSCI Emerging Market Index - China, Korea, Taiwan and India collectively make up ~67.5% of the index. Let's take a look at their currency and market performance YTD:
USD/RMB YTD -4.9% | SHCOMP -13% | SZCOMP -16.96% | HSI -4.46%
USD/KRW YTD -4.8% | KOSPI -6.98%
USD/TWD YTD -3.23% | TPEX -6.91%
USD/INR YTD -7.5% | Nifty 50 +7.37%
With the exception of India (which has no company in the "Top 10") most of the major markets for the MSCI emerging markets index have had a pretty bad year. China went thru a round of deleveraging while the Korea and Taiwan which have some very good tech companies have been heavily hurt by the caution within the tech supply chain / trade war / typical slowdown in economy as we approach end of credit cycle.
Of the "top 10 index companies" half are listed in Hong Kong (Tencent / CCB H / China Mobile / ICBC H / PingAn H) with a weighting of ~10% of the entire index. With RMB non deliverable forwards in 2019 priced at USD/RMB 7.3-7.4 in 3Q2019, the market clearly has expectation of a prolonged RMB depreciation which would negatively affect the reported earnings of said companies. Combined with, slowing Chinese macro data figures:
* July PMI 51.2 (actual) vs 51.3 (expected) | June PMI 51.5
* China 2Q2018 GDP Growth of 6.7% vs 1Q2018 GDP Growth of 6.8% (if you even trust the numbers)
I believe the current price of around $18.30-$18.50 is a good area to accumulate this as a long term trend as the U.S dollar will continue to be more liked as the Fed goes thru with it's normalization, while Chinese RMB and other EM currency will deflate.
Trade active
Recommend continuing to accumulate EUMHong Kong's Hang Seng Index has dropped over 2.15% today with:
Tencent (700HK) down ~2.93%
CCB H (939HK) down ~2.12%
China Mobile (941HK) down ~1.074%
ICBC H (1398HK) down ~1.9%
PingAn H (2318HK) down ~3%
The above is worth around 10% of the MSCI Emerging market Index and I continue to believe Developed Markets (Namely USA) will draw funds away from Emerging markets as USA pushes thru with raising rates and China's fundamentals slow down as the economy deals with 1. it's credit bubble 2. slowing world trade 3. it's transition to domestic consumption (which seemed to work when the economy was still growing but heavy savers will likely save even more when the economy slows down?)
Trade closed: target reached
First post July 31st EUM ~ $18.39EUM saw highs of ~$20.20
There is just too much slippage over time.. and simply shorting the index would have produced much better returns.
Therefore closing my recommendation on Long EUM.
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