Buy the Emerging Markets on Weakness

The EEM ETF helps you invest in companies you might not otherwise have easy access to

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The emerging markets got hit especially hard in the broad market weakness, but that’s not a huge surprise considering the group tends to have a slightly higher beta than United States-based stocks, especially during times of panic. There is a perception that emerging-markets stocks carry higher risk than those based in developed countries, and while that may have a bit of truth to it, the overall generalization isn’t accurate.

I was bullish on the emerging markets prior to the global market sell-off and am even more so now that we can pick up these names on sale. Their valuations are more attractive than those of developed markets stocks — particularly the U.S. — and historically speaking, the emerging markets are a good value play at current levels. Also, anticipated growth in this space is higher than what is expected from the developed markets, which makes the emerging markets a lot more attractive.

The EEM ETF Is a Standout

There’s no question the emerging markets are a great buy right now, and my NexGen newsletters already have exposure to this sector through various ETFs and stocks. One of my favorites is the iShares MSCI Emerging Markets Indx (ETF) (NYSEARCA:EEM), a basket of 857 emerging markets stocks.

The top 10 holdings account for 25% of the allocation, with China as the largest weighting (30%), following by South Korea (14%), Taiwan (11%) and India (8%). I am bullish on all of these areas this year.

EEM’s annual expense ratio is 0.69%, which is higher than many U.S. ETFs. However, the exposure this fund offers to stocks otherwise not accessible to the average investor makes that worthwhile.

This ETF is a great low-cost way to gain exposure to the emerging markets asset class. It has pulled back on the broad weakness and briefly touched its 200-day moving average (the red line), but that only created a bullish reversal pattern on a major support level.

EEM has traded much better since hitting a near-term bottom, and I like that it has been able to recapture its 50-day moving average (the blue line). I expect that level to hold, and over time I see it headed to the high $50s.

This ETF is a great way to play the NexGen emerging markets mega-trend, and if you can supplement it with a few related stock holdings you will be in great shape.

Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.


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