3 Ways to Play the Bounce in Emerging Markets

EMs look set to join U.S. large-caps in their resurgent move

Stocks have come roaring out of the Oct. 15 lows despite the Federal Reserve bringing its QE3 bond purchase stimulus to an end. This has been encouraged by comments from Fed officials that they are in no hurry to raise short-term interest rates, which have been mired near 0% since 2008, as well as the resolute performance of the U.S. economy.

emerging marketsOn Thursday, we learned that the economy expanded at a 3.5% annualized rate in the third quarter following a 4.6% rise in the second quarter. That’s an impressive performance given the pressures we’re seeing overseas in places like Europe and Japan.

And while U.S. large-cap stocks have zoomed right back up to re-challenge the record highs set in September, foreign stocks haven’t come along for the ride. That looks set to change as emerging-market stocks, as a group, round higher in the best looking upside breakout since February.

Here are three ways to play the move:

iShares MSCI Emerging Markets ETF (EEM)

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The granddaddy of EM ETFs, the iShares MSCI Emerging Markets ETF (EEM), is rounding back above its 200-day moving average and has a long way to climb to get back to the highs set in early September. A return to that level would be worth more than a 9% gain from here.

The EEM provides conservative, diversified exposure to more than 800 large- and medium-sized emerging-market stocks. I’ve just recommended the EEM to my Edge subscribers and have also recommended November call option positions in EEM to my Edge Pro subscribers. Both call option positions are carrying gains of nearly 60% since being added on Oct. 24.

iShares Latin America 40 ETF (ILF)

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If the EEM is too broad for you, consider a regional EM ETF like the iShares Latin America 40 iShares (ILF), which focuses on the 40 largest stocks in Mexico, Brazil, Argentina and Chile.

The ILF is rising not only on the end of the recent Brazilian presidential election, but also on some recent stabilization in industrial commodity prices, with copper and crude oil in particular important export items for countries in this region.

If the ILF can return to its September high, it would be worth nearly a 20% gain from here.

Market Vectors Russia ETF (RSX)

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With the calming of the situation in Ukraine, and with Kiev and Moscow working on a natural gas deal, Russian stocks look ready to end a downtrend going back to June.

On Thursday, the Market Vectors Russia ETF (RSX) jumped up and out of its most recent two-month downtrend channel, setting the stage — at the very least — for a test of the early September highs. That would be worth a near 15% gain from current levels.

I’ve recommended a position in the RSX to Edge subscribers.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/emerging-markets-eem-ilf-rsx/.

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