Talking Numbers

Emerging markets are setting up for a huge move

Emerging markets started 2014 down but is a big move in store?


There have been only a couple of trading days in the new year but, so far, emerging markets are having a tough go. The iShares MSCI Emerging Markets ETF (the EEM), which tracks emerging markets, dropped 3% last week.

However, nearly half the index is exposed to just three countries: China, South Korea, and Taiwan. According to CNBC contributor Gina Sanchez, founder of Chantico Global, which emerging market countries investors put their money will make all the difference in 2014.

“I actually think that, within 2014, [emerging markets are] going to be an opportunity,” says Sanchez. “Within EEM, there's going to be a lot of differentiation. I think that investors who are coming into this space have to kind of know what they're buying.”

One of the big hurdles faced by emerging markets in 2013 was the rise in US interest rates beginning in the spring. That drew money out of riskier emerging market assets. Nonetheless, Sanchez believes that even India, a market she believes will see deceleration in 2014, offers opportunities.

CountryConditionIndex2013 returns
South KoreaIncredibly goodKOSPI-1%
IndonesiaPositiveJakarta Composite-2%
RussiaDeceleratingMicex6%
IndiaDeceleratingBombay Sensex7%
BrazilDeceleratingBovespa-18%
TurkeyChaoticISE National-100-15%
ThailandChaoticSET-11%
EgyptChaoticCase 3023%

For investors who do want use the EEM as a way to invest in emerging markets, Jeff Tomasulo, Managing Partner of Belpointe Alternative Investments, says the technicals show the ETF trading itself into a wedge after a period of volatility. According to Tomasulo, that means a major move is coming soon.

“We're going to have something,” says Tomasulo. “It's either going to explode up or explode down.”

While Tomasulo believes the EEM will most likely head down, Sanchez thinks it will likely head in the opposite direction.

“Rates are rising; people are looking for growth,” says Sanchez.” At some point, we're going to see growth reestablish itself in some of the EM countries and I think that's going to be a huge positive.”

To see more of what Sanchez and Tomasulo think are next for emerging markets and the EEM, watch the video above.

 

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