Emerging Markets & Global Recession = Opportunity
US technical recession confirmed with Atlanta Fed GDPNow data indicating retraction in Q2, two consecutive negative GDP prints. While US stock markets have already experienced the worst first half of the year in more than half a century.
Typically in a bull market, this would signal the bottom of a retracement is already in or nearby. Unfortunately, this isn't a bull market and there's still significant downside risk from here. The Fed Reserve and Central Banks continue to have rampant inflation that challenges price stability while the second half of the mandate (low unemployment) remains strong.
Unemployment #'s will rise as tighter monetary policy takes shape in form of rate hikes and slowing securities to mature and roll off the balance sheets. Unemployment is unlikely to raise to a level of concern as there are 2 jobs available (nearly 12 million) per each unemployed person. The more likely scenario is underemployment as individuals find income in roles they are overwrites for.
In addition to unemployment, overnight reverse repo facilities are setting $2 Trillion flow back consistently, indicating a significant oversupply of money without quality investment potential.
Implications for emerging markets is clear, tighter monetary policy will drive these lower as global recession takes hold.
Looking at long-term parallel channel and major support levels, further downside from 18% to 24% is well within range and likely given the additional pullback expected.
How does this get played? Shorting EEM is an option, however there's more attractive potential in going long with inverse ETF's (leveraged or not) via entities like ProShares & Direxion. One example is the 3x $EDC bull / $EDZ bear ETF's benchmarking MSCI Emerging Markets.
Indicators: OBV On-balance volume, MA6/EMA18
Currently, taking a position with the inverse $EDZ play in the short-term is attractive. This will reverse and requires attention, it also involves risk that the broader economy has already bottomed or is close to the bottom... but the data implications don't appear to support that position at this time in my opinion.
Typically in a bull market, this would signal the bottom of a retracement is already in or nearby. Unfortunately, this isn't a bull market and there's still significant downside risk from here. The Fed Reserve and Central Banks continue to have rampant inflation that challenges price stability while the second half of the mandate (low unemployment) remains strong.
Unemployment #'s will rise as tighter monetary policy takes shape in form of rate hikes and slowing securities to mature and roll off the balance sheets. Unemployment is unlikely to raise to a level of concern as there are 2 jobs available (nearly 12 million) per each unemployed person. The more likely scenario is underemployment as individuals find income in roles they are overwrites for.
In addition to unemployment, overnight reverse repo facilities are setting $2 Trillion flow back consistently, indicating a significant oversupply of money without quality investment potential.
Implications for emerging markets is clear, tighter monetary policy will drive these lower as global recession takes hold.
Looking at long-term parallel channel and major support levels, further downside from 18% to 24% is well within range and likely given the additional pullback expected.
How does this get played? Shorting EEM is an option, however there's more attractive potential in going long with inverse ETF's (leveraged or not) via entities like ProShares & Direxion. One example is the 3x $EDC bull / $EDZ bear ETF's benchmarking MSCI Emerging Markets.
Indicators: OBV On-balance volume, MA6/EMA18
Currently, taking a position with the inverse $EDZ play in the short-term is attractive. This will reverse and requires attention, it also involves risk that the broader economy has already bottomed or is close to the bottom... but the data implications don't appear to support that position at this time in my opinion.
