Traders Are Flocking To A Surprising Leveraged EM ETF

Mexican stocks were supposed to be vulnerable to the idea of Donald Trump in the White House, but the MSCI Mexico IMI 25/50 Index gained 14.5 percent last year. However, that lagged the MSCI Emerging Markets Index by a wide margin as the emerging markets benchmark returned 37.3 percent.

The MSCI Mexico IMI 25/50 Index is up about 7 percent to start 2018, a solid showing and one that is sparking renewed interest in the Direxion Daily MSCI Mexico Bull 3X Shares MEXX. The Direxion Daily MSCI Mexico Bull 3X Shares is designed to deliver triple the daily returns of the MSCI Mexico IMI 25/50 Index.

That index “is designed to measure the performance of the large-, mid- and small-capitalization segments of the Mexican equity market, covering approximately 99% of the free float-adjusted market capitalization in Mexico. The Index consists of stocks traded primarily on the Mexican Stock Market,” according to Direxion, one of the largest issuers of inverse and leveraged ETFs 

Increasing Interest

MEXX, the only triple-leveraged Mexico ETF trading in the U.S., debuted last May. For much of its early existence, MEXX toiled in obscurity, but data suggest that is changing in a significant fashion.

For the five days ended Jan. 29^th, volume in MEXX was nearly 230 percent above the trailing 20-day average, according to Direxion data. Additionally, traders are putting new money to work with MEXX. Over the past month, the triple-leveraged Mexico ETF is averaging daily inflows of nearly $312,000, according to issuer data. 

Conversely, the iShares MSCI Mexico ETF EWW, which also tracks the MSCI Mexico IMI 25/50 Index, has 2018 inflows of just $7.4 million.

Supportive Data

Economic growth could support more upside in MEXX as 2018 moves along.

“Gross domestic product in Latin America’s second-biggest economy grew around 1.0 percent in seasonally adjusted terms in the October-December period, compared with the previous quarter, the national statistics agency said on Tuesday,” reports Reuters.

Forecasts called for growth of 0.6 percent. Aggressive, short-term traders could find opportunity in MEXX throughout 2018, perhaps via shorting the ETF. Mexico is widely expected to raise interest rates again next month and is likely to be the only emerging market to do so this year. Plus, the country is slated to hold a presidential election in July with President Enrique Pena Nieto looking vulnerable in the face of tepid economic growth.

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