NEW YORK (MarketWatch) — Emerging-markets stocks have jumped to their highest level in nearly 17 months.
The closely watched iShares MSCI Emerging Markets ETF (EEM) finished Wednesday at $44.76, its best close since January 2013.
What's driving the rally? What's next? Here are five things to know.
1. Upbeat Chinese reports help: Better economic reports from the biggest emerging market, China, deserve a lot of credit, according to Russ Koesterich, BlackRock's global chief investment strategist.
"The recent improvement in Chinese economic data has provoked the beginning of a rotation back into emerging markets (EMs)," Koesterich wrote in his latest weekly investment commentary. "Last week was the sixth consecutive week of inflows into EMs, which suggests sentiment toward the asset class is starting to turn." Read more: China Q2 GDP beats, 'hard landing' seen as distant risk
Koesterich has said his team prefers Asian equities in particular, and they're neutral on the broad category of EM stocks.
2. Watch for more talk about looking outside the U.S.: Keep an eye out for chatter about how stock investors have begun to venture abroad — and how emerging-market equities are relatively cheap.
That's the prediction offered by Michael Batnick at his Irrelevant Investor blog. He notes the iShares MSCI Emerging Markets ETF, after underperforming the SPDR S&P 500 ETF (SPY) for years, has advanced 20% from its February low.
Given that "stories tend to follow price, I am 100% certain that if this action continues, we are going to hear some very interesting theories," writes Batnick , who is Ritholtz Wealth Management's research director.
"I imagine it will go something like this: 'Attractive valuations coupled with severe under performance and fears over the end of the Taper, it's no wonder investors have started to look outside the United States.'"
Some market watchers already have been talking up the attractive valuations, from Aberdeen Asset Management in April to Jeff Reeves in June.
3. You might not want to buy EEM: The iShares MSCI Emerging Markets ETF — shown in the adjacent chart — gets lots of attention, but EEM isn't for everyone.
/quotes/zigman/322623/delayed/quotes/nls/eem EEM 44.76, +0.04, +0.09%
This ETF is "the choice for institutional investors and active traders thanks to its robust liquidity and deep options market," write analysts at ETF.com. The analysts' top pick for the EM segment, especially for long-term investors? It's the iShares Core MSCI Emerging Markets ETF (IEMG) , which has an expense ratio of just 0.18% versus EEM's 0.67%.
ETF.com also describes the Vanguard FTSE Emerging Markets ETF (VWO) as a "very strong choice," noting that it excludes South Korea while EEM and IEMG include that nation. Keep in mind that there are also more-targeted EM ETFs , like one that promises exposure to the developing world via blue-chip companies based in the developed world.
4. Russia's retreat hasn't stopped the EM rally: Russia is a huge emerging market, but so far the slide by Russian equities on Ukraine-related worries hasn't been enough to hold back the broad EM ETFs.
It's worth noting that Russia accounts for only about 5% of EEM. Latin America and China each account for 18%, and the Middle East and Africa together make up 9%. Read more about Mideast investing: 5 things to know about Saudi Arabia's market.
While Vladimir Putin might sneer at weakness, EEM's exposure to the so-called "Fragile Five" actually has helped offset its exposure to Russia. That's the label given to the five emerging-market nations of Turkey, India, Indonesia, Brazil and South Africa. This year, the Fragile Five have become the Fantastic Five, as a DealBook post put it.
5. Chart watchers wary of the $45 level: The iShares MSCI Emerging Markets ETF peaked around the $45 mark in January 2013, and it also turned tail around that level in 2012.
The ETF is "hitting key resistance," said Dave Lutz of Jones Trading in his "What Traders Are Watching" note on Wednesday.
"Keep an eye on the EEM (Emerging Markets) here," he added. It's "gapped toward 45" after having "failed there in 2012 and 2013."
More from MarketWatch:
Why junk-bond ETFs could drop in the next 1 to 3 months
Map shows world's terrorist hot spots
5 reasons why Richard Bernstein thinks stocks aren't in a bubble
No comments:
Post a Comment