Though it closed off its lowest levels of the day, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the second-largest emerging markets exchange traded fund by assets, fell 2.2% yesterday while touching another new low.
What is now an extended slide for emerging markets ETFs has plenty of traders and investors pondering where some of the big-name developing markets funds will find technical support while notching legitimate bottoms. Some fund managers believe it will be a while before emerging markets stocks recover in earnest. Investors pulled out of riskier emerging markets as data showed growth from China’s economy slowed, commodity prices fell and the Federal Reserve signaled an interest rate hike this year.
While the recent selling has depressed emerging market valuations, some argue that ongoing economic headwinds can still weigh on developing country equities. The currently low valuations suggest that many believe corporate earnings will remain depressed over the next decade.
Some market observers acknowledge emerging markets appear inexpensive because earnings growth is contracting with little sign of rebounding in the near-term.
EEM’s technical outlook does not portend a forthcoming rally of epic proportions.
“Once the Emerging Market ETF (EEM) broke support at $36, it went on to tag $30. There was a throwback, or dead-cat bounce, which naturally found resistance at the prior support at $36. Notice in the chart below that the bearish price objective has confluence with the 2008-2009 bear market rebound highs at the $27 mark. That prior congestion zone should provide some support for the Emerging Market ETF,” according to See It Market.
EEM “has seen an even steeper selloff than U.S. stocks this year, falling more than 11 percent in the first two weeks of 2016. However, Gordon sees the emerging markets fund falling even farther, to the $20 level, which would be another 30 percent drop from where the ETF closed on Friday,” according to CNBC.
Moreover, rising borrowing costs, a stronger dollar and rising corporate debt loads, with the International Monetary Fund warning of corporate defaults, are adding to volatility. [Area Emerging Market ETF Investors Must Monitor]
iShares MSCI Emerging Markets ETF
Tom Lydon’s clients own shares of EEM.