The widely followed MSCI Emerging Markets is flirting with a year-to-date loss of 9.40 percent. On Thursday, 16 emerging markets exchange traded funds hit 52-week lows.

That could present a good opportunity for the Direxion Daily MSCI Emerging Markets Bear 3X Shares (NYSE:EDZ), which plays emerging markets to the downside. 

EDZ is designed to deliver triple the daily inverse returns of the MSCI Emerging Market Index. Translation: EDZ is a volatile bet on a volatile asset class, meaning traders should heed the “daily” part of EDZ's objective and not be seduced by the fund's performance over longer holding periods, as impressive as they may be.

Why It's Important

Data suggest bearish traders are piling into short positions on the iShares MSCI Emerging Markets ETF (NYSE:EEM) while flows into inverse leveraged emerging markets have lightened up in recent weeks.

“Short interest in the iShares MSCI Emerging Markets ETF has jumped to $4 billion, the highest amount wagered on further equity declines since April 2014, according to IHS Markit data,” Bloomberg noted.

What's Next

EDZ could continue proving useful for short-term traders as 2018 moves along. If trade tensions escalate, Chinese stocks could continue sagging, a relevant point because the MSCI Emerging Markets Index devotes 32.49 percent to China, by far the benchmark's largest country allocation.

Additionally, Brazil, home to one of the emerging world's worst-performing equity markets this year, holds national elections in October. Brazil, Latin America's largest economy, is 5.87 percent of the MSCI index's weight.

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