The ETFs that track fast-growing Indonesia and Malaysia look poised to outperform, and with a pullback likely in the week ahead, favorable buy set-ups may be presented for both.
Most of the emerging markets have rallied alongside developed markets this week and have bounced sharply from their lows. Still, it is a very split picture, as the outlook for the emerging markets as a group looks less attractive than that of the US market.
Clearly, the move out of higher-risk assets that began with silver’s plunge in early May has hurt many of the emerging market ETFs. Many of those funds had already peaked in April and were declining.
While the BRIC markets are still well below the prior highs, there are two country ETFs that are breaking out to the upside and in my view have the best potential for the rest of the year. I do expect a slight pullback in these ETFs over the next week, which should be a buying opportunity.
Chart Analysis: The iShares MSCI Emerging Markets Index Fund (EEM) hit the 50% support level with the June 23 low of $45.59. This ETF has its highest concentration in the Brazilian oil company Petrobras (PBR), which may explain why it is lagging.
The weekly chart of the Market Vectors Indonesia Index (IDX) looks very strong, as it is just below the weekly trend line resistance at $32.33 (line e). The upper parallel trend line (line d) is now in the $36.50-$37 area.
NEXT: Good Buy Set-up for Malaysian ETF