A Look at Emerging Market ETFs as Fiscal Cliff Looms

November 14th at 6:00am by Tom Lydon

Emerging market exchange traded funds are looking ripe for the picking as their correlation to the U.S. stock market is low, and pricing is right. Many analysts are saying that they are buying opportunities now that China is showing signs of stabilization and the U.S. Presidential election is behind us, but there are still many obstacles that loom in the near future.

“The biggest overseas positive from a short-term, macroeconomic perspective, has been a stabilization in Chinese economic data since September. With growth so uncertain elsewhere, maintaining this momentum will be key to global investor equity risk appetite, in our view. All eyes will be on the 10 year Chinese political handover beginning November 8 and lasting into early 2013. We expect further monetary and fiscal policy easing by Q2 of next year once the political transition is complete, the prospects for which should help offer some positive support to stocks globally in the meantime,” S&P Capital IQ wrote in a recent note.

Now that the U.S. Presidential elections are over, the impending fiscal cliff is the next obstacle, as most of the political leadership will stay the same. Many investors are giddy that a deal will not be easy to reach in a timely manner. For this reason, S&P Capital is predicting that most European and emerging market equities will be riding in choppy waters for the rest of the year. [Dividend and International ETFs for the U.S. Fiscal Cliff]

S&P Capital IQ is rating the following ETFs Overweight: iShares MSCI EAFE Index ETF (NYSEArca: EFA), Vanguard Tax-Managed International MSCI EAFE ETF (NYSEArca: VEA), Vanguard Emerging Markets Stock Index MSCI EM ETF (NYSEArca: VWO). The iShares MSCI Emerging Markets Index ETF (NYSEArca: EEM) has been rated Marketweight. [International Developed Markets: Beyond MSCI EAFE]

“Most negativity in emerging markets is coming from developed markets,” Lars Christensen, chief emerging-markets analyst at Danske Bank, said in a report by Bloomberg BusinessWeek. “There are concerns about the fiscal cliff situation in the U.S.” [Using ETFs to Build a Diversified Portfolio]

iShares MSCI Emerging Markets Index ETF

Tisha Guerrero contributed to this article.

Full disclosure: Tom Lydon’s clients own EEM.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.