With U.S. stocks getting slammed on the back of a June
consumer sentiment number that missed expectations, 82.7 compared
to the reading of of 84.5 economists expected, it is another "sea
of red" day for emerging markets
. Following some
nice surprises on Thursday
, emerging markets stocks look poised to close the week lower
with the iShares MSCI Emerging Markets Index Fund (NYSE:
) flirting with a weekly loss of 3.1 percent.
However, there is at least one bright spot Friday and the
source of it is arguably surprising. Downtrodden India ETFs are
showing signs of life even as investors retreat from other
emerging markets funds.
Earlier Friday, India's Commerce Ministry said its wholesale
price index rose 4.7 percent year-over-year in May following a
4.89 percent jump in April. That is good for a 43-month low and
better than the 4.88 percent increase
economists polled by Bloomberg expected
While the funds are currently off their intraday highs, the
WisdomTree India Earnings ETF (NYSE:
), the largest India ETF by assets, and the iShares S&P India
Nifty 50 Index Fund (NASDAQ:
) are both trading higher.
Those ETFs and others have often shown an intimate correlation
to Indian inflation data and it has previously been inflation
that has prompted sharp sell-offs in equities in Asia's
third-largest economy. The other side of the coin is that Indian
inflation has been ebbing, giving the Reserve Bank of India room
to cut interest rates, which it has done, and the May inflation
data supports the notion that RBI has more room with which to
pare rates in an effort to bolster the economy.
RBI has cut rates to 7.25 percent following reductions at its
past three meetings. The central bank meets again Monday and that
could prove to be another significant trading opportunity in EPI,
INDY and other India ETFs.
Still, investors should approach India ETFs, among the more
volatile emerging markets funds, with some degree of caution. EPI
is down more than 10 percent in the past month, marking the
official definition of a correction. INDY and the PowerShares
India Portfolio (NYSE:
) are close to one-month declines of 10 percent as well.
That may imply the funds are oversold, which they probably
are, but the wild card is the rupee. Earlier this week, India's
currency hit a record low against the dollar and that was after
it was already apparent the rupee was
relative to the greenback.
However, and this is just to state the facts not an overly
bullish view on Indian stocks or the rupee, the WisdomTree Indian
Rupee Fund (NYSE:
) has jumped almost 2 percent this week. Take that with a grain
of salt because the weekly gain will be solely attributable to
ICN's bullish, light volume Friday performance. Still, when it
comes to the emerging markets currencies,
gains are gains at this point
Going into next week's RBI meeting, the ETFs risk-tolerant
traders may want to have a look are the EGShares India Small Cap
) and the Market Vectors India Small-Cap ETF (NYSE:
). Those two ETFs are down an average of more than 14 percent in
the past month, but the two offer considerable exposure to the
Indian consumer story.
Despite the lower rate of overall inflation, Indian consumer
prices lose 9.31 percent last month, according to Bloomberg. That
could be the impetus for further rate cuts, which could give SCIN
and SCIF a chance for some near-term upside.
For more on ETFs, click
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