Note the similarity between India’s breakout and Brazil’s breakout. Both fell 50%-plus from respective 2011 highs. And while India (EPI) bottomed out in the 2nd half of 2013 whereas Brazil (EWZ) bottomed out in the first few months of 2014, each is roughly 20% above its respective long-term trendline. Overbought? Sure. Yet the extent of the demand is greater than at other moments in the past four years. Whether you wait for a cooling off period or nibble this afternoon, the move may help you shift away from relying too heavily on U.S. stock ETFs.
Keep in mind, the economic data on emergers is quite favorable. In China alone, wages have been growing at a double-digit annual percentage (13.8%) for a decade, increasing the purchasing power of middle-class consumers there. Wage growth in the U.S.? Stagnant. In fact, some estimate that the number of middle-class consumers in emerging markets will surpass the number in the U.S. and Europe combined by 2020.
Still not convinced? Then consider the total return percentages in the table below:
| The Re-Emergence Of Emerging Market ETFs | ||||||||
| 3 Months | 6 Months | 1 Year | ||||||
| iShares MSCI Brazil (EWZ) | 18.8% | 33.1% | 28.8% | |||||
| SPDR S&P China (GXC) | 14.6% | 13.6% | 19.0% | |||||
| iShares MSCI South Africa (EZA) | 7.5% | 11.9% | 24.8% | |||||
| Market Vectors Indonesia (IDX) | 6.7% | 10.6% | 27.4% | |||||
| WIsdomTree India (EPI) | 2.3% | 32.2% | 66.7% | |||||
| S&P 500 SPDR Trust (SPY) | 4.1% | 8.0% | 23.9% | |||||
U.S. equities have been the clear leader since the euro-zone crisis in 2011. Yet a seismic shift that favors emerging markets may be in the works. And unlike the QE-inspired success for U.S stock ETFs, the exuberance for emerging market ETFs is far more rational.