I have been pounding the table for years about a global synchronized recovery, and there is no better way to play it than emerging markets (EEM).
That play it not over.
After suffering volatility that was a multiple of what we saw here in the US during the February meltdown, Emerging markets ae getting ready for an upside move.
The fundamental case is there.
During a period of global growth, emerging nations see growth rates that are double or more those seen here in the US and Europe.
Emerging companies tend to be more highly leveraged than western competitors, giving an upside hockey stick effect on profit growth.
And much of the emerging world is tied to commodities, a legacy of the investments made in their countries by former colonial masters during the last century.
Commodity prices usually outperform those of stocks as we approach the tag ends of a prolonged economic cycle because additional supply can't be created with a printing press.
Emerging countries are also getting a strong tailwind from a weak US dollar, as it increasing the purchasing power of their earnings on the world stage.
Companies that financed their debt in US dollars, a common occurrence abroad, effectively see their loans paying themselves off.
With exploding US budget deficits and a ballooning national debt, a continuation of a weak dollar is a sure thing for the foreseeable future.
This has heralded a dramatic improvement in the credit quality of emerging companies.
Even the technical set up is looking attractive on the charts. You see a narrowing triangle formation to the right which should break out to the upside once the growth data comes in.
The is just a continuation of a trend that has been in place for years.
Since they bottomed at the beginning of 2016, the (EEM) has tacked on an impressive 100%. This is in sharp contrast to the S&P 500 (SPY), which has gained by only 63.42% during the same period. Owning technology was the only way you could beat emerging market returns.
China is the mainstay of emerging markets, with far and away the largest weighting in the (EEM). Last week, the government confirmed that it was targeting a 6.5% growth rate for 2018, the same that was achieved last year.
China only accounts for 3% of US steel imports, so the imposition of a punitive 25% tariff will have a minimal impact on the countries growth prospects.
However, don't look and emerging markets as a one-way bet. After a two-year bull run, it happens to be one of the most over owned sectors in the markets.
There are also major elections coming up in several emerging nations, like Brazil and Mexico. A backlash against Trumps nationalist, protectionist, "America First" policies are a sure thing. That would be market negative.
One way to sidestep this is to take a rifle shot at a single country that has no imminent election. India is the hedge fund community's favorite right now, which has the additional attraction that its steel and trade exposure to the US is minimal.
Take a look at the PowerShares India Portfolio ETF (PIN) if you are so inclined.
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