Profit From An Emerging Markets Bubble With ETF’s (EEM, EEV, EDC, EDZ)

bubbleThe great thing about ETF’s is you can take the other side of the trade easily.  Emerging market ETF’s have been on a tear while the short etf’s have suffered tremendously.  Could a bubble be forming in these foreign markets? 

“Emerging markets — those developing countries that used to be called “The Third World,” like Chile and China, Turkey and Thailand, Brazil and India — have been hotter than a potful of habanero peppers. The MSCI Emerging Markets index has gained 45% so far this year, versus 9% for the U.S. And investors have noticed, pouring $10.6 billion into emerging-markets mutual funds so far this year, or more than 34 times the total they added to U.S. stock funds. The iShares MSCI Emerging Markets Index Fundis now the fourth-biggest of all exchange-traded funds, with $30.8 billion in assets,” Jason Zweig Reports For The WSJ.

“Investors hope to capture the stunningly high growth of the developing world, especially with the U.S. economy shriveling. In the second quarter of 2009, China’s economy officially grew 7.9%, while the U.S. likely contracted about 1.5% in the same period. For all of 2009, Barclays Capital forecasts, the developing economies of Asia will grow 5.2%, while U.S. gross domestic product will shrink by 2.3%,”  Zweig Reports.

“That isn’t a typo. Over the long run, stocks in the world’s hottest economies have performed half as well as those in the coldest. When Prof. Dimson presented these findings recently in a guest lecture at a Yale University finance program, “a couple of people just about fell off their chairs,” he says. “They couldn’t believe it.” But, if you think about this puzzle for a few moments, it’s no longer very puzzling. In stock markets, as elsewhere in life, value depends on both quality and price. When you buy into emerging markets, you get better economic growth — but, at least for now, you don’t get in at a better price,” Zweig Reports 

“In other words, economic growth is high, but stock valuations are even higher. In 2008, as U.S. stocks fell 37.6%, emerging markets crashed 53.3%, according to MSCI. At year end, emerging-markets stocks traded at a 38% discount to U.S. shares, as measured by the ratio of price to earnings. Now that both markets have bounced back, emerging markets are at only a 21% discount. And make no mistake: They should be much cheaper than U.S. stocks, because they are far riskier,” Zweig Reports.

Here are some 6 month charts on long emerging market ETF’s below:

iShares MSCI Emerging Markets Index (EEM)

Chart for iShares MSCI Emerging Markets Index (EEM)

Direxion Daily Emerging Markets Bull 3X Shares (EDC)

Chart for Direxion Daily Emrg Mkts Bull 3X Shares (EDC)

Here are some 6 month charts on the short side of trade in emerging market ETF’s below:

UltraShort MSCI Emerging Markets Proshares (EEV)

Chart for UltraShort MSCI Emerging Mkts ProShares (EEV)

Direxion Daily Emerging Markets Bear 3X Shares (EDZ)

Chart for Direxion Daily Emrg Mkts Bear 3X Shares (EDZ)

Full Story: HERE

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