Emerging markets ETFs are extending their rallies again
Tuesday. That is helping some funds that have spent extensive
periods of time below their 200-day moving averages inch closer
to reclaiming that important technical indicator.
And the 200-day moving average is important. Securities that
trade below that line are considered, by some technical analysts,
to be in bear markets. Conversely, it is a bullish sign when a
stock or ETF crosses its 200-day line and one that encourage new
buyers to come off the sidelines. Investors looking for emerging
markets ETFs that are close reclaiming their 200-day lines should
consider the following funds.
Emerging Markets Small-Cap ETFs Rebounding
WisdomTree Emerging Markets Equity Income Fund (NYSE:
) The WisdomTree Emerging Markets Equity Income Fund does battle
with the likes of the Vanguard FTSE Emerging Markets ETF (NYSE:
) and the iShares MSCI Emerging Markets ETF (NYSE:
). Earlier this year, DEM unveiled one of the largest allocations
to Russia, currently 19.9 percent,
among diversified emerging markets ETFs
Analysts and pundits opined that this Russia's reputation for
volatile equity markets would lead to increased volatility for
DEM. That has not been the case. DEM's year-to-date volatility is
17.7 percent, below that of VWO and EEM. Actually, DEM's
year-to-date volatility is noticeably below its three-year
average. DEM is up nearly five percent in the past month and is
just 0.6 percent below its 200-day line. A move above that area
could set the stage for a run to $56.
iShares MSCI South Africa ETF (NYSE:
) Although the materials sector is merely the fourth-largest in
EZA accounting for less than half the weight given to financial
services, the ETF's largest sector allocation, this fund is still
intimately correlated to precious metals prices. That is because
South Africa is a major gold producer as well as the largest
platinum and second-largest palladium producer in the world.
Gold's savage decline earlier this year predictably pressured
South African equities and EZA, but the ETF has rebounded. Now,
EZA is not only just 0.55 percent below its 200-day line, but the
fund is also in breaking out of an inverse head and shoulders
another bullish sign
There is a cautionary tale with EZA, though. Many emerging
currently sport favorable valuations
. South Africa does not appear to be one of them.
In terms of 12 month forward P/E, historically, South Africa
trades at around 0.9 times relative to MSCI Emerging Markets (10
percent discount). Now it is trading at 1.3 times, a substantial
40 percent premium,
according to Barron's
iShares MSCI Mexico Capped ETF (NYSE:
) The iShares MSCI Mexico Capped ETF resides five percent below
its 200-day moving average, but this ETF can make up that gap in
short order. After all, EWW is up almost six percent in just the
past week. However, there risks here as well.
Much of the allure surrounding EWW has been based on the
expectation of bold political and economic reforms. However,
those reforms are now getting watered down in what could be a
sign that President Enrique Pena Nieto is facing the same hurdle
as some of his predecessors: Promised change that goes
Mexican stocks are not cheap
. With almost 40 percent of its weight in defensive staples and
telecom names, EWW is richly valued compared to equivalent China
or Russia ETFs.
For more on ETFs, click
Disclosure: Author is long DEM.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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