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Here’s why emerging markets are threatening the US

Talking Numbers

Turmoil in emerging markets may threaten a US stock rally, according to two strategists.

The world's emerging markets are shaking up and that's bad news for US stocks.

Currencies and markets from Argentina to Malaysia are seeing massive selloffs thanks to weaker growth numbers from China and mounting fears of the effects of a US monetary stimulus taper.

CNBC contributor Gina Sanchez, founder of Chantico Global, says that skittishness in emerging markets should not be ignored by investors in US stocks.

(Watch: Is China really running out of cash?)

"Why does it matter? Because it matters to sentiment," says Sanchez. "If we start to get into currency crises that cause folks to have to rebalance their portfolios away from emerging markets – or close out at losses or get margin calls – that has an impact onto sentiment. And, sentiment is one of the big positives that's left holding up kind of the outlook for the S&P 500."

"Valuation is maybe a little toppy," says Sanchez, "but sentiment so far has actually been a big support to the S&P 500."

According to CNBC contributor Andrew Busch, editor and publisher of The Busch Update, investors looking to buy into emerging markets right now may suffer losses if they use the iShares MSCI Emerging Markets ETF (the EEM).

Yet it's not just emerging market risks that are affecting the EEM; Busch notes it's also sensitive to industry and company risks.

(Read: Google and Samsung sign global patent deal)

"This is an entity that is comprised of 40% of financials and technology," says Busch. "And, [the EEM's] biggest holding is Samsung. So, we know what's happened to Samsung – not so good."

Samsung is makes up 3.65% of the ETF. As well, stocks from just three East Asian countries – China, South Korea, and Taiwan – make up nearly 47% of the index, with China alone at nearly 19%.

Where do Busch and Sanchez see US stocks going in light of turmoil in the emerging markets? Watch the video above to find out.

 

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