3 ways to play the emerging-markets rebound

Left for dead by investors since last summer, equities of counties like China, Brazil and India are seeing a powerful new uptrend.

By Anthony Mirhaydari Apr 1, 2011 1:21PM

It's no secret that the financial system is awash in cheap cash. Years of extraordinary monetary policy from the Federal Reserve, the Bank of Japan and the European Central Bank have armed investors with plenty of firepower. So we've seen something akin to a global game of hot potato over the past year in which investors have moved en masse from one market to another in search of profits.

 

Last summer, traders wanted foreign issues as the dollar weakened after the Greek bailout. American stocks were shunned, while European and emerging-market issues soared. Then, as the dollar stabilized last fall and U.S. economic growth re-accelerated, asset flows reversed and everyone piled into American assets. European and emerging-market issues moved lower as Ireland and now Portugal suffered sovereign debt contagion while China had to hike interest rates to fight inflation.

 

Now things are reversing again. But with Europe still in trouble, emerging-market stocks are receiving all the benefit and have demonstrated huge performance since the Japa-Libya market sell-off two weeks ago. Since March 16, the iShares Emerging Markets (EEM) has gained nearly 11%, almost twice the performance of U.S. stocks. I first highlighted the trend in a blog post last week, and I think there is a lot of upside still to come.

 

The shift in sentiment is already showing up in fund flow data. The folks at EPFR note that emerging-market mutual funds just enjoyed their highest weekly inflow since the first week of January, at $2.6 billion. This ends the worst period of outflows for EM funds since the middle of 2008.

 

Here's a look at three EM ETFs and stocks I've recommended to my newsletter subscribers over the past two weeks.

 

 

Market Vectors Indonesia (IDX) invests in companies that are listed in Jakarta or generate at least 50% of their revenues in the country. Holdings include United Tractors and Bank Mandiri. The IDX is in a solid, confirmed uptrend after breaking through downtrend resistance.

 

 

Market Vectors Brazil Small Cap (BRF) focuses on smaller, more economically sensitive stocks in Brazil, including homebuilder Gafisa (GFA) and sugar and ethanol producer Cosan (CZZ). BRF blasted out of a pennant consolidation pattern this week and is moving to retest its November and January highs.

 

 

Icici Bank (IBN) is India's largest private financial institution, with more than $100 billion in assets and more than 2,500 branch locations. Shares are moving higher after a breakout from downtrend resistance as the 20-, 50- and 200-day moving averages form a rainbow up convergence.

 

Disclosure: Anthony has recommend EEM, BRF, IDX, and IBN to his newsletter subscribers. 

 

Check out Anthony's new investment advisory service, The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up.

 

The author can be contacted at anthony@edgeletter.com and followed on Twitter at @EdgeLetter. Feel free to comment below.

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