Dennis Hudachek at IndexUniverse makes some good points about Emerging Markets:
There is indeed a tremendous amount of pessimism around emerging markets at the moment.
Yet I think it’s important not to get too carried away and assume all emerging markets—as classified by MSCI and lumped together in popular funds like the iShares MSCI Emerging Markets ETF (EEM | B-96) and the Vanguard FTSE Emerging Markets ETF (VWO | B-85)—are destined to crash together.
Clearly some economies are holding up better than others.
It’s quite possible that any potential Fed tapering—assuming this hasn’t been fully priced in already—will be a game-changing event, but it won’t be the end of the game for all emerging markets.
It’s difficult to know the extent to which this sell-off will last, but when the dust settles, I wouldn’t be surprised if the resurgence in emerging markets could look very different from its prior meteoric rise over the past decade.
Looking forward, I think it’s possible that a different group countries, sectors and/or companies can lead the pack in the next leg of growth for these markets, now that the emerging middle class has blossomed.
Many of the smaller emerging markets like Indonesia and Turkey have been among the best performers for most of the last couple of years (until recently) while the larger markets like China and Brazil have lagged. Is a leadership change taking place in emerging markets or will those smaller emerging markets resume their leadership after this correction runs its course? Luckily, those employing the PowerShares DWA Emerging Markets Technical Leaders ETF (PIE) don’t have to guess. Our relative strength work will sort out the winners and the losers and the changes will be reflected in the new index weights (this index is reconstituted on a quarterly basis.)
See www.powershares.com for more information. Past performance is no guarantee of future returns.
