After severely lagging the U.S. and developed markets last
year, emerging markets are adding insult to injury in the new
kicked off the first trading day of 2014 with their biggest
one-day sell-off in six months.
were troubled by anti-government protestors roiling Thailand,
weak economic reports from China and a sudden surge in the U.S.
"Lack of liquidity in the markets due to holidays exacerbated
the sell-off," Neena Mishra, director of ETF research at Zacks
Investment Research in Chicago, said in an email.
Vanguard FTSE Emerging Markets ETF (
), the largest ETF in category by assets, plunged nearly 3.5%. By
MSCI EAFE (
), tracking foreign developed markets, slid 1.9% and
SPDR S&P 500
) fell 0.9%.
"Today's tape action should not be surprising, nor should it
be alarming," Anthony Danaher, president of Guild Investment
Management in Los Angeles with $170 million in assets under
management, said in an email. "A lot of portfolio decisions --
especially sales -- may have been pushed into 2014 for tax
Thailand's Political Turmoil
IShares MSCI Thailand (
) sold off hardest among all equity ETFs, plunging 9% to its
lowest level in nearly two years. It tumbled 15% in 2013. It has
been trending lower since May and now trades deeply below both
its 50-day and 200-day moving averages, indicative of severe
weakness. But it's also very oversold, making it ripe for a
sudden snap-back rally from bottom fishers and short-covering.
Traders betting on falling prices have to buy back shares to
close their positions, thereby creating demand.
Antigovernment protestors threatened to shut down Bangkok by
Jan. 13 in hopes of ousting Prime Minister Yingluck Shinawatra
and derailing national elections set for Feb. 2. Yingluck
threatened to declare a national emergency, which would impose
curfews and allow information censorship. Thailand's economy and
tourism industry may take a huge hit ahead of Chinese New Year on
Jan. 31. The baht currency fell for an 11th straight day -- it's
longest losing streak on record,
Phuket Wan Tourism News reported
China Manufacturing Weakens
IShares China Large-Cap (
), the flagship ETF for the world's second-largest economy,
tumbled 3%. It broke below key price support at the short-term
50-day moving average but it still trades above its 200-day line,
indicating a weak uptrend. It ended 2013 down 2% after forming a
bottom in July.
The HSBC/Markit Purchasing Managers' Index (PMI) for China
fell to a three-month low of 50.5 in December, although it
remains above 50, the minimum reading for expansion,
China should enjoy economic growth of at least 7% this year,
but interest rates are rising. Guild Investment Advisory doesn't
recommend investing there. "The government is being forced to do
repeated short-term squeezes on the nonofficial lending sector --
unofficial banks and illegal lenders who are overlevered," Guild
wrote in a client note released Thursday. "Further, the
government is trying to tighten the reins on provincial
governments who have engaged in and encouraged too much real
The dollar kicked off the New Year with a bang, thereby
amplifying losses in foreign investments. Gains made in foreign
currencies convert to fewer dollars as the dollar
PowerShares DB U.S.
Dollar Index Bullish (UUP), measuring the dollar against a basket
of foreign currencies, gapped up 0.6%. Although it broke above
the 50-day line, it remains deeply below the 200-day line,
indicating a strong downtrend. It dipped 1.3% last year.
The dollar rallied on positive economic data. Unemployment
claims dropped by 2,000 to 339,000 the last week of 2013, the
Labor Department reported Thursday. The
Institute for Supply Management's index
of U.S. manufacturing beat Wall Street expectations and showed
expansion for a seventh month straight in December. New orders
rose to their highest level since April 2010. The Employment
Index rose to the highest level since 2011.
IHS Global projects the unemployment rate will dip from 7.4%
in 2013 to 6.5% in 2014, while gross domestic product grows 2.7%
in 2014 after expanding 1.9% last year.
"While we look forward to a much better 2014, it should be
remembered that 2.7% growth still remains below the economy's
average annual growth of 3.0% between 1990 and 2007," Doug
Handler, chief U.S. economist at IHS, wrote in a note. "The
threats to this growth are all the usual suspects: policy
missteps from Washington, including a deadlocked debt-ceiling
debate; weaker-than-expected growth in many key U.S. trading
partners, hurting export growth; and interest rates rising
especially sharply in reaction to either additional tapering or
renewed fears of inflation. These risks are all viewed as
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