President Trump’s saber rattling has rippled through equity markets, notably Emerging Markets, taking them noticeably lower off of intraday (and new fifty-two week) highs reached intraday yesterday.
Put buyers have emerged in full force in EEM (iShares MSCI Emerging Markets, Expense Ratio 0.72%, $35.2 billion in AUM) today consisting of outright October 39 put buyers as well as various put spread strategies involving September, November and December options.
Why is this notable? First off, South Korea (16%) is the second largest holding in EEM behind China (27%), and Trump’s commentary yesterday which sent global markets sharply lower carrying into today and everyone whom has been paying attention know that once again “North Korea” and “Nuclear war-type tensions” are front and center once again, unfortunately.
This said, we are also watching EWY (iShares MSCI South Korea Expense Ratio 0.64%, $3.8 billion in AUM) closely as that fund is getting blitzed today (-1.9%). Year-to-date, EWY has still managed to post positive flows ($154 million) but it remains to be seen if sellers do not enter the picture here given the short-term headline risk and accompanying weakness in the underlying market.
EEM has posted even more impressive inflow numbers year-to-date, with over $2.3 billion flowing into the fund, as has competing ETF VWO (Vanguard FTSE Emerging Markets, Expense Ratio 0.14%, $60.4 billion, $6.5 billion in YTD), but again this may be a slippery slope scenario if headline risk remains high, with the potential for market shaking rhetoric from both the U.S. and North Korea likely not dissipating anytime soon.
Bear and levered Bear funds in the greater Emerging Markets space as well as in Korea have to be on radars here and for future purposes. These funds include EDZ (Direxion Daily Emerging Markets Bear 3X, Expense Ratio 1.11%, $97 million in AUM), EUM (ProShares Short MSCI Emerging Markets, Expense Ratio 0.95%, $141 million in AUM), and EEV (ProShares UltraShort MSCI Emerging Markets, Expense Ratio 0.95%, $36 million in AUM) in the broad Emerging Markets space.
Unfortunately, those looking to short South Korea will not find a “Bear” fund in the space and will have to check the borrow-ability of the long EWY and KORU (Direxion Daily South Korea Bull 3X, Expense Ratio 1.31%).
The iShares MSCI Emerging Markets Index ETF (NYSE:EEM) was trading at $43.81 per share on Wednesday afternoon, down $0.45 (-1.02%). Year-to-date, EEM has gained 25.72%, versus a 11.42% rise in the benchmark S&P 500 index during the same period.
Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.
Paul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.
He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.