Three Emerging Markets ETFs to Play the Latest Mini-Rally

Rightly maligned for much of 2015, emerging markets stocks have been on a tear since the calendar flipped to 2016.

The iShares MSCI Emerging Markets (EEM) fund, an emerging markets ETF that many use as a proxy for the performance in emerging market stocks, is up 20% since January 20, easily outpacing the 12% run-up in the S&P 500 over that span. Though a bit shy of its April highs, the EEM is still comfortably above its 25- and 50-day moving averages. That’s a green light for emerging market investors.

Paul Goodwin, Chief Analyst of our Cabot Global Stocks Explorer (formerly Cabot Emerging Markets Investor) advisory, routinely tells his readers to invest in stocks, not markets.

 

He invests in some of the fastest-growing companies in the world, and emerging markets happen to be a very good place to look for growth. But there are times when you may want exposure to a variety of stocks from a single country, and a good way to do that is through an ETF.

You could simply invest in the EEM. It is, after all, up 20% in the last five months, and trading above its technical barriers.

The only problem is the fund focuses on the universe of emerging market stocks, not just one country, so it’s not an ideal way to target the strength of one particular emerging market. There are better, more precise, opportunities out there in the world of emerging markets ETFs, starting in China.

After a miserable second half of 2015, now is a good time to load up on Chinese stocks again. Since hitting a 15-month low in February, the Shanghai Composite Index has risen nearly 10% despite (like the EEM) some slippage from its April highs. To play the rebound in Chinese stocks, you might consider PowerShares Golden Dragon Halter USX China Portfolio (PGJ), which gives you access to the collective performance of all the Chinese stocks that trade on U.S. exchanges.

What its colorful name means is that PowerShares (a family of ETFs run by Invesco) offers one called Golden Dragon (to indicate that it targets Chinese issues) that tracks the performance of the USX China Index run by Halter. Or, to simplify things, just think of PGJ as a way to get exposure to Chinese ADRs that trade on U.S. exchanges without having to buy Chinese stocks or worry about currency risk.

Last summer, worries about the economic health of China caused many investors to run away from China as if it were a burning building and PGJ plummeted from above 36 to below 25. It bounced back nicely in February, March and April, touching 31 on April 13, but has since sagged back to 27, dropping below its moving averages.

The clear message of PGJ is that investors are being very picky about which Chinese stocks they are willing to bet on. If that chart looks a bit scary, you could wait to buy until the PGJ pokes its head back above its 50-day moving average.

Another China-centric ETF alternative, recommended in one of our recent Wall Street’s Best Investments issues, is the Global X Nasdaq China Technology ETF (QQQC), which gives you exposure to some of China’s faster-growing industries. It focuses primarily on financials (property, insurance and banks) and the technology sector (hardware, internet and e-commerce).

The only catch? Like the PGJ, the QQQC recently dipped below its moving averages.

Regardless of which fund you choose, emerging markets are in a clear rebound phase, and emerging markets ETFs are an efficient way to gain exposure to the rebound in either a very broad or very specific way. EEM has the best chart, but PGJ and QQQC have higher upside should they finally join the rally in Chinese stocks.

Of course, if you’d rather invest in the best individual emerging market stocks, you could simply subscribe to Paul’s Cabot Global Stocks Explorer advisory. Since 2005, Cabot Global Stocks Explorer has doubled its readers’ money nine times and achieved a No. 1 ranking from The Hulbert Financial Digest, along with a Best Investment Newsletter of the Year designation by Peter Brimelow of MarketWatch. 

If that piques your interest, click here.

Chris Preston

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Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.

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