Emerging Market ETFs Test Long-Term Trends and Support

May 30th at 7:00pm by Tom Lydon

Emerging market exchange traded funds are testing their long-term moving averages once again as investors shun risky overseas assets.

The iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM) declined 4.2% year-to-date and is testing the 200-day simple moving average, the third test in under a year.

Since climbing above its long-term trend line last year, the fund has survived two tests of this indicator, once in November 2012 and again in April 2013.

The emerging markets have been underperforming. The S&P 500 index is up 17.4% so far this year and is roughly 9% above its 200-day moving average. The MSCI World Index is up 11% this year. [Is the Party Over for High-Yield Emerging Market Bond ETFs?]

If emerging market stocks break below their 200-day moving average, it could be a warning signal for global stocks as the emerging markets are more sensitive to credit risks and economic growth.

On Wednesday, the MSCI Emerging Markets Index was moving toward its lowest level since April 24, Bloomberg reports.

Peter Jankovskis, co-chief investment officer of Lisle, believes that the recent pullback in emerging market equities is partly due to the Fed scaling back. It “certainly is a story that’s bubbling up from time to time,” Jankovskis said in the article. Additionally, the underperformance in China is also weighing on the emerging markets.

“The IMF downgraded their forecast for China, and that had a ripple effect across emerging markets,” Jankovskis added.

iShares MSCI Emerging Markets Index Fund

For more information on the developing economies, visit our emerging markets category.

Max Chen 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.

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