The Week Ahead For These ETFs: Watch Out For Recent Overweights
Tim Seymour: We have noted the fear of technical sell signals based on fund flows. These will likely continue as emerging markets flows start looking dangerously buoyant.
Emerging markets funds took in another $1.8 billion last week, giving them the longest streak of positive flows since the breathtaking seven-month flood of money that ended in December.
Brazilian funds like the iShares MSCI Brazil Index ETF (NYSE:EWZ) keep bleeding cash while Russian funds like Market Vectors Russia ETF (NYSE:RSX) keep signing more subscriptions. Neither is necessarily bullish for the short term.
Russia, despite its outperformance compared to the rest of the BRIC countries, looks vulnerable going into the seasonal May break — Moscow will all but close for the next two weeks for national holidays.
You have a greater risk overhang if you are playing this “crowded trade” while the Moscow traders are away and the overseas investors are driving. Russia has been a consensus allocation in the emerging markets so far this year and the March data reaffirm that this is also the biggest overweight in the asset class.
With that kind of lopsided sentiment in play, smart traders get cautious.
Other places to follow the bouncing ball of fund flows include China. While there was a notable shift from underweight to overweight on Hong Kong recently, the fact that consensus is still underweight Taiwan - iShares MSCI Taiwan Index (NYSE:EWT) and Malaysia - iShares MSCI Malaysia Index (NYSE:EWM) is significant.
Near-term strategic view on positioning in the emerging markets: Try going underweight the materials and energy-heavy markets of Russia and Brazil — easy enough, given the Bovespa’s woes — and favor domestic growth stories instead.
India – PowerShares India (NYSE:PIN) and Turkey - iShares MSCI Turkey Invest Mkt Index (NYSE:TUR) look interesting after pullbacks from their bottoming trend-driven bounce.
And off the beaten track, how about Peru, where elections in June are clouding a strong macro valuation story you can own in the form of the iShares MSCI All Peru Capped Index (NYSE:EPU).
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.