Trade of the Day: iShares Emerging Markets ETF (NYSEARCA:EEM)

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Today, we’re opening a new bearish trade on the iShares MSCI Emerging Markets Fund (EEM). The market is shifting. As Wall Street starts to contemplate the potential of a global economy that is not wholly supported by central banks with never-ending easy monetary policies, traders are reducing the risk exposure in their portfolios. When U.S. Treasury and other government bond yields were at rock bottom, traders had to look elsewhere and take on more risk in order to earn higher yields. However, now that Treasury yields are rising, those riskier assets don’t look quite as appealing at their current price levels. This shift is going to drag on emerging-market stocks.

The rising U.S. dollar (USD) is also likely to have a negative impact on EEM. Whether these emerging-market companies have taken out loans denominated in USD — which become more difficult to pay back as the USD rises — or they are dependent on the price of commodities, which have an inverse relationship with the USD and therefore become worth less the higher the USD goes, they tend to underperform when the USD is rising while the global economy is relatively stagnant.

Buy to open the EEM October 35 Puts (EEM161021P00035000).

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Article printed from InvestorPlace Media, https://investorplace.com/2016/09/trade-day-ishares-emerging-markets-etf-nysearcaeem/.

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