The Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the two largest emerging markets exchange traded funds by assets, along with rival funds tracking developing economies are in rally mode.
Some of these ETFs have surged five percent, six percent or more in just the past week. But as is often the case, rallies like that in short time frames bring out calls for caution. Potential investors should be aware that not all emerging markets are created equal. While ETF options like EEM and VWO track major emerging market indices, these ETFs follow market capitalization-weighted indices that could overexpose investors to a few large countries or a specific sector.
Commodities prices are rebounding, in turn bolstering some emerging economies, such as Russia, Brazil and other Latin American nations that are represented in EEM and VWO. Still, some market observers acknowledge emerging markets appear inexpensive because earnings growth is contracting with little sign of rebounding in the near-term.
Regarding EEM, “we can see prices are above the 50-day and 200-day moving averages. The On-Balance-Volume (OBV) line is not really giving much support to the price rally. The 12-day momentum study is not a problem but the weekly chart below is another story. There is chart resistance in the $36-$37 area and more above $38,” reports TheStreet.com.
Some market observers remain cautious on emerging markets banks, an important point because financial services is usually one of the largest sector weights in diversified emerging markets ETFs.