Today, lets a quick look at the Emerging markets, and the “Frontier” markets. Both of these markets represent countries that have been out of favor for a while. A strong USD hasn’t helped. But, with the recent pullback within the USD, some new interest has arisen in these collective indices.
I’d like to look at these indices with an eye on a potentially attractive investment opportunity in the near future. But keep in mind that a strong USD wont help their markets – so it would be even more favorable if we saw a breakdown in the dollar. As such, we will also look at the USD chart vs. the basket of international currencies. This will help us assess if there is potential for a weaker dollar — a help to any potential breakouts on the emerging markets.
Emerging Markets (EEM)
The iShares Emerging markets ETF is starting to look like a breakout candidate. In fact, if we see another week of positive action, I’d be willing to start legging into this ETF, or a similar instrument. This ETF holds index securities concentrated in China, S. Korea, Taiwan, India and Brazil. It’s got lesser holdings in S. Africa, Mexico, and others.
Frontiers Markets (FM)
At ValueTrend, we hold shares of the iShares Frontiers ETF. This ETF holds “off the radar” markets like Kuwait, Vietnam, Morocco, Kenya, Romania, etc. Probably not the kind of indices you’ve looked at in the past. More risk, but more opportunity than even the Emerging markets space. Its been trading sideways after a failed rally attempt. But it hasn’t broken down. This might be one more area that could benefit from a shift out of the USD.
The USD
Make no mistake about it, the USD has pulled back recently. Some analysts are bearish on the story. But, as you can see on the chart below, the greenback looks to be trading in a channel. It hasn’t broken its uptrend. Could it break? Sure it could! But it hasn’t….yet. Don’t count the chickens ‘til they’re hatched. A break from this channel will imply a storm is a comin’ for the dollar. Meanwhile, it should be assumed to be holding the trendline until proven otherwise.
Conclusion
Great looking setups for these charts, but we need that confirmation breakout to the upside for both FMa and EEM, coinciding with a weak or sideways looking USD. Keep an eye on these charts for potential entry signals. As noted above, I am a bit early on the FM chart, but the safest bet is to wait for a bit more positive confirmation.
5 Comments
The US financials seem to be breaking out. I am looking at either the ZUB or ZBK. What do you think?
I beleive the ZBK isnt currency hedged (check on that, I am going by memory)–so you do have that currency thing if the USD cracks per my comment on this blog.
But yes, the ZUB does seem to be early stage breakout….currency hedging is helping I assume
I hold a small position in VEE which, according to StockCharts, has gained 15.6% in the past 12 months, not at all shabby. It shares a similar chart to EEM and even FM. My trendlines on the weekly chart suggest a triangle which is nearing the apex and must break one way or the other soon. It’s just touching the down trendline on the way up and could break through which would be positive. But if it fails, the most recent support is $30.91 from the current $32.85.
This is indeed, one my more volatile holdings and would likely benefit from TA. As you know, I tend toward a buy and hold strategy.
Are buyers of negative interest bonds seeing a deflating currency purchasing power and thus happy to get a known value payback ?
Can the deflationary amount be derived from the bond term and rate.?
For tax purposes is this a capital loss offset or a revenue reduction offset?
Given that interest rates are a function of inflation, taxation and risk to achieve real return, isn’t this NIRP being vastly under discussed?
Al–this isn’t a technical analysis question. I will say that negative yields are created when the market is convinced that its better to pay a bit of money for a guaranteed safekeeping–and when you think that yields will go still further negative. Otherwise, yes, its a lousy investment after those scenarios end. Talk to a tax consultant re your tax questions. I’m not qualified to advise in that area.