Emerging Markets Oversold After Goldman, JP Morgan and Morgan Stanley Downgrades

According to Bloomberg, major Wall Street firms are bearish on emerging markets. Their bearishness extends to equities, fixed income markets and currencies. Bloomberg reported, “Goldman Sachs Group Inc. recommends investors cut allocations in developing nations by a third, forecasting “significant underperformance” for stocks, bonds and currencies over the next 10 years. JPMorgan Chase & Co. expects local-currency bonds to post 10 percent of their average returns since 2004 in the coming year, while Morgan Stanley projects the Brazilian real, Turkish lira and Russian ruble will extend declines after tumbling as much as 17 percent in 2013.”

In the short-term, emerging markets are oversold. iShares MSCI South Korea Index Fund (NYSE: EWY) is one example with a PowerRatings of 9.


iShares FTSE/Xinhua China 25 Index Fund (NYSE: FXI) and Market Vectors Russia ETF (NYSE: RSX) also ended trading yesterday with PowerRatings of 9.

PowerRatings are based on the relative strength or weakness of particular stocks or ETFs. The higher the rating, the greater the one week historical gain has been for stocks and ETFs with that rating. For best results, enter trades on stocks with a PowerRatings of 8 or higher with a limit order 3-7% below the previous day’s closing price. Higher % limit entries have historically shown a greater percentage of winning trades but higher % limit orders also reduce the chance of trade execution.

In the past, buying stocks with *a rating of 9 on a 3% pullback the next day and selling five days later has been profitable 75% of the time. The average winner has gained 4.3%. Other entries and exits also show high winning percentages and large average gains.

EWY, FXI and RSX should all be considered buys on additional weakness.

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All data is as of the end of day on 1/7/2014.