More Selling, More Opportunities in Emerging Markets ETFs

Yesterday’s column “China, Russia and the Breakdown in the BRIC ETFs” highlighted growing, short-term weakness in many emerging market country funds from the iShares FTSE/Xinhua China 25 Index ETF (NYSE: FXI) to the Market Vectors Russia ETF (NYSE: RSX). Today, we’ll broaden the scope to look at regional exchange-traded funds that include more than one of these national equity markets.

For example, one of the more widely-traded regional ETFs is the iShares MSCI Emerging Markets Index Fund ETF (NYSE: EEM). Most heavily weighted by sector in financials, with basic materials and technology coming in second, the iShares MSCI Emerging Markets Index Fund ETF includes stocks like Samsung Electronics from South Korea, Gazprom from Russia, and Petroleo Brasileiro Petrobras from Brazil.

EEM climbed back into bull market territory at the beginning of February as part of a four-day rally that took the ETF into short-term overbought territory. The fund continued higher for another month, rallying to new, 6-month highs.

Since these highs, EEM has made two significant, short-term corrections. The first, coming immediately after those new highs, consisted of a three-day sell-off that took the fund into technically oversold territory for two consecutive sessions. Buyers swooped in after the second oversold finish, sending the stock higher by nearly 5% over the next five days.

The second short-term correction includes the current pullback. Here, the iShares MSCI Emerging Markets Index Fund ETF has moved lower in much the same way as before: three consecutive lower closes, with two in technically oversold territory above the 200-day moving average. What is especially interesting is that, in the previous instance, EEM earned “consider buying” ratings of 9 out of 10 the day on its third consecutive lower close (and second in oversold territory). So far, with EEM pulling back by nearly one and three quarters percent ahead of trading on Wednesday, EEM has earned a massive, four-point intraday ratings upgrade from a very neutral, 5 out of 10, to a strong, “consider buying” 9 out of 10.

Some of the other emerging markets ETFs that are earning significant ratings upgrades after pulling back on Tuesday include the Vanguard Emerging Markets ETF (NYSE: VWO), which earned a ratings upgrade from 6 out of 10 to 9 out of 10 intraday on Tuesday after pulling back by nearly one and a half percent, as well as the iShares MSCI BRIC Index Fund ETF (NYSE: BKF). BKF also earned a major ratings upgrade on Tuesday, climbing from a neutral, 6 out of 10, to a “consider buying” 9 out of 10, in the wake of a 2% pullback.

Shares of BKF have a positive edge of more than 3%.  EEM and VWO have short-term, positive edges of 1% and just over three-quarters of a percent, respectively.

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David Penn is Editor in Chief of