As if war between Russia and Ukraine wasn’t bad enough, emerging market stocks (BKF) are still dealing with two other major problems: China’s unfolding credit crisis and Latin America’s currency and political turmoil.
Russia’s president Vladimir Putin said that Russian troops have the right to invade Ukraine, setting up the possibility for combat between the two countries. Russian stocks (RSX) have slid around 14.5% year-to-date and have been among the worst performing single country ETFs. Conversely, shorting Russian stocks (RUSS) has been the right move.
Overall, emerging markets continue to be the Achilles heel for global markets, which is why they sit atop our latest Mega-Investment Theme Report.
Rather than being tricked into buying emerging market stocks because of relatively inexpensive valuations, price action remains bearish and tells us that it’s still too early to dive in head first.
The March 2014 edition (issued on Feb. 24) of ETF Profit Strategy Newsletter said:
“Over the past three years, the Vanguard FTSE Emerging Markets ETF (VWO) has declined almost 15% in value. Not only has this particular equity category been a sour underperformer, but the relative performance gap between emerging market and developed market stocks has been significant. Over the past three years, the relative outperformance of the iShares MSCI Developed Markets ETF (EFA) and the Vanguard Total U.S. Stock Market ETF (VTI) has been an amazing 25% and 55% respectively. We see another big move down yet to come.”
Asian stocks are bracing for China’s Lehman Brothers moment when $634 billion yuan ($103 billion) in property trusts must be repaid. Not only is that a 50% jump in the number of maturing trusts, but falling property values are cutting the ability of local governments to raise money to put back into the economy. Financial markets have smartened up to China’s shell game of borrow and spend.
On Feb. 10, we sold the final leg of the ProShares UltraShort FTSE China 25 ETF (FXP) which was originally featured in our Dec. 6 Weekly ETF Picks. If Chinese stocks want to stage another fake rally, we’ll view it as another opportunity to reload.
The ETF Profit Strategy Newsletter uses technical, fundamental, and sentiment analysis along with market history and common sense to keep investors on the right side of the market. In 2013, 70% of our weekly ETF picks were gainers.
Follow us on Twittter @ ETFguide