EEM -- iShares MSCI Emerging Index Fund

Discussion in 'Stock Message Boards NYSE, NASDAQ, AMEX' started by bigbull, Jun 26, 2018.

  1. bigbull

    bigbull Active Member

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    [​IMG]

    iShares MSCI Emerging Markets Index Fund (the Fund) seeks to provide investment results that correspond generally to the price and yield performance of the MSCI Emerging Markets Index (the Index). The Index is designed to measure equity market performance in the global emerging markets. The Index was developed by Morgan Stanley Capital International Inc. as an equity benchmark for emerging market stock performance. The Index is a capitalization-weighted index that aims to capture 85% of the (publicly available) total market capitalization. Component companies are adjusted for available float and must meet objective criteria for inclusion in the Index. The Index is reviewed quarterly.
     
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  2. bigbull

    bigbull Active Member

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    Among the top holdings are: Tencent, Alibaba, Taiwan Semi, JD.com, MercadoLibre, etc.

    $42.30 is the level of the sand. If that price point fails to hold at any point through year-end, the entire up-trend would come to an end.
    $43.02 may serve as an intermediate low but it says nothing on the extension of the retracement.
    A trade above $44.25 by the end of July or multiple tests of $42.30 would lead to a favorable trade set-up. Nothing more.

    I favor some emerging market companies, just not emerging market debt. With a fund like EEM that gets re-balanced quarterly and carries much of the headline risk of emerging market economies, you have to be careful owning it.
     
  3. bigbull

    bigbull Active Member

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    Everyone is fixated over the trade war but not over the looming crisis in emerging market debt.
    Funds levered to emerging market debt such as the MSD -- Morgan Stanley Emerging Market Debt Fund or the ELD -- WisdomTree Emerging Market Local Debt have diverged from the EEM on the way up and down. Not a good sign. ELD is about to break new lows.

    Most emerging economies are in trouble and local authorities know it. The idea of financing federal, state and local projects with cheap dollars to get a value added on the investment is absurd only because interest rates were held at `crisis levels`for too long which ended up distorting the cost of financing. Add on top of this funds who bought emerging market debt, at perceived discount with a higher yield, and you have a recipe for real trouble ahead as liquidity dries up, dollars become scarcer and spreads between cost and yield narrow. If you add the pension gap most of these countries face, there is just no way they get out of it through the other side with structural reform.

    I`d be very careful with emerging market debt and look to it as the real reason behind current market unrest.

    To be clear, not all emerging markets will suffer. But the collateral damage will be strong enough which will end up affecting all emerging markets.
    A country like Colombia is in a stronger position than say, Indonesia, as the incoming President tries to privatize pension funds. But even so, this is a country that took on too much dollar denominated debt. The unwinding process will initially hit all emerging markets.
     
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  4. bigbull

    bigbull Active Member

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    Held $42.30 on a week, month and quarter end closing basis which eliminates the risk of a waterfall event near term. However, this does not mean the coast is all clear mid to longer term as emerging market debt continues to cast a shadow over the performance of most emerging market companies. Again, emerging market debt is whats in fault and at risk here, not emerging market equity or stock. It may be unpopular to say, but its the truth.

    $43.42 becomes the new point of contention. If that level holds into Labor Day, the uptrend will remain in place. However, to validate any type of a bounce into end of summer, the ETF will need to hold above $43.53.

    From that point onward, $44.08 becomes the new level to watch for. An extension of the counter-trend rally into year end will be measured by how well price responds above $44.08. Even if price manages to end the year above $42.30, it would still paint a favorable picture for the first quarter of 2019 but it would imply gains will be muted.

    A break below these price point would confirm an end to the uptrend leading to a cycle inversion.


     
    #4 bigbull, Jun 30, 2018
    Last edited: Jun 30, 2018
  5. bigbull

    bigbull Active Member

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    So far, EEM is holding above $42.30 which eliminates a larger waterfall decline short term. $43.42 to $43.53 is essential to restoring the uptrend. If those price points hold in the weeks ahead, there is a measured move to be had up to $44.29 to $44.93. How quickly this happens remains unclear. From there, it will require a trade above $48.61 to keep the momentum going into next year, otherwise $45.21 to $46.69 is the range that needs to hold into any consolidation phase into the first quarter of next year to support higher prices. If at any point EEM trades back below $43.0, either in year end or by the first quarter of 2019, the current retracement would come to an end setting up for better prices down the road or possibly warning on a continuation of the downtrend coming off the highs.

    Obviously, the current move run should not be taken at face value. There are more questions than answers in the EEM. But for a trade, it seems to be holding OK. Too bad I did not enter the trade.



     
  6. bigbull

    bigbull Active Member

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    The trade up to $44.29 to $44.93 -- $44.61 -- is now realized. As mentioned repeatedly, $43.36 must hold into year-end, and $43.73 (as the low point) by the end of the first quarter of 2019, to avoid a backdrop against this move. If any of those levels are breached to the downside there will pressure mounting against $42.30 which holds the key to the long term trajectory of EEM.

    If you bought into this into weakness, I would not take my chances and either cut my position or trim most of it and set a tight stop. The emerging market debt crisis is real. While most emerging market companies (private sector) will do relatively well longer term, emerging market economies (public sector) will not. And because it is an unknown how investors will react once the domino-effect hits full force, its best to avoid EEM all together until the storm passes. There is just no reason to take on the added risk with the same payout potential that other asset classes offer.

    This has been hidden under the rug, and for good reason. People at the know and ready do not want anyone to talk about this, but its what is shaping up current trends and it would be dishonest and a disservice to say other factors are shaping current macro trends when they are not. Trump wants the Fed to decelerate its pace of interest rates increases, not just to weaken the dollar to export more, avoid a hit to corporate earnings and America (i.e. undo the benefits of tax reform), but to avoid a trigger of emerging market debt. But what a stronger dollar does, besides test the toughness of these emerging market economies, is attract investment into the U.S. Where else will capital flee, other than the U.S. and China, when Europe possess other structural risks and most of the developed world remains hostage to emerging market performance? The U.S offers safety and performance short to mid term, while China offers growth and opportunity long term.

    A stronger dollar is a good thing. Of course, too much of a good thing is dangerous but eventually the dollar will break the camel's back. It's not a matter of if, but when. I truly feel bad for people in these countries that know little about the topic, or worst, laugh hysterically at the matter thinking this time is different. To each his own. TO anyone who naively believed people in the know have my and your best interest at heart, wake up. They don't. They seem to play nice but its always part of a bigger symphony at play.




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    Source: https://www.bloomberg.com/news/arti...ress-just-beginning-as-record-debt-wall-looms

     
  7. bigbull

    bigbull Active Member

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    Emerging markets are in a heap of trouble. All it takes is to have an objective mind.

    Where I currently live -- Colombia -- the amount of apartments and offices for sale or rent is mind boggling. Every morning, on my way to work, I go on and count the number of apartments and offices with a FOR SALE or RENT sign. I wouldn't be lying if I said that for every 10 apartment buildings, at least 8 have a FOR SALE or RENT sign. The vast majority have more than one, but lets not overstretch ourselves. Ive done the tally, and even with my iffy math, there are north of 180 apartments/offices FOR SALE in a densely packed 10 mile radius. That wasn't seen just a few years back.

    To me this shows how bad the economic situation is across most emerging markets (not just Colombia). Even though the majority of people own an apartment or house (its part of their culture -- or was anyways), they don't have much liquidity -- and that is precisely the problem. Contagions are created and spread by lack of liquidity. The problem is most everyone finds themselves in the same situation which posses the threat of a waterfall decline in housing prices, if they are not first hamstrung by sky-high government taxes.

    People in most emerging markets, Colombia included, haven't experienced a collapse in housing prices, in part because housing was seen as the place you lived in as opposed to an investment. Once that mindset changed, it began to create massive shortfalls in capital. Emerging markets have been building on these shortfalls for the past 20 years that to this moment have gone unnoticed. The massive exodus of capital from emerging market currencies speak to this. Whereas before the devaluation of the currency was namely a cause of inflation, todays debasement is a reflection in the lack of confidence in government.

    The Colombian Peso has remained stable as it receives aid from the US given their strong ties. Like a good mistress, Colombia sells itself for good payment. Its often denied, but it is evident. But even if the US tries to shield Colombia from what comes next, I am afraid Colombia will not go unscathed. Perhaps it wont face the brunt of the contagion, but it will feel it just enough.


    Watch the Euro. It broke below $1.613 which is a level I flagged on the Euro thread here:
    https://stockaholics.net/threads/eur-usd.44/page-2#post-80070

    I would short Emerging market debt, Euro and go long a quality name like Disney, Target, Amazon, etc for the next few years. The Euro, as a currency, is finished. The EU, however, will survive in another form.
     
  8. bigbull

    bigbull Active Member

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    I cannot stress enough the serious consequences of the current emerging debt crisis. Capital has fled the most vulnerable markets even as local central banks try to push back -- following the same antics of their bredrins in the developed world.

    Evidence on how wary these countries are can be found in new debt issuance, emerging-market issuance shrunk to $6.3 billion in June, from an average of $54.6 billion a month from January to April, according to CreditSights data.

    Clearly fear in these countries is palpable. Emerging markets have a tougher go than the Federal Reserve did since inflation in these countries are predominantly higher than the US. Any attempt to lower interest rates to ease borrowing costs faces a reciprocal backlash in allowing inflation to debase their currencies. Raising interest rates to entice foreign buyers to buy their debt only aggrandizers the problem since it will peg the borrowing costs at a higher future level. Same principle as what is seen in Europe, but the inverse.

    Rising interest rates to stimulate FDI does not work. Just look at Russia and the ruble. Yes, it contains outflows in the short term, but it boxes their currency weakening the central banks ability to combat crises .


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    #8 bigbull, Aug 8, 2018
    Last edited: Aug 8, 2018
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  9. bigbull

    bigbull Active Member

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    Its amazing how the media is quick to interrelate Lira weakness with that in the Euro without thinking for a second if the weakness in the Euro is inherent from the lack of public and investor confidence in the bloc currency as a direct result of the poor management handed down by the undemocratic body (they elect themselves) that is the EU.

    Of course Lira weakness is responsible for some of the weakness seen in the Euro only because Turkey serves as the gateway between West and East. Its strategic location makes it important for commerce, but its not the reason pushing the Euro lower. The levels mentioned in the Euro thread -- link found above -- ongoing distrust by the public and investors, a predominantly socialist self imposed political and economic structure and sky-high taxes that serve no greater purpose are the main culprits.

    The media will continue to shadow and use incomplete, and often bogus excuses, to describe (or at least try to) weakness in the Euro as they try to protect their masters and assign blame to others. Do as they wish. The outcome will be the same. Euro is heading below par against the Dollar. It will be hard to believe that the Lira and Argentina Peso were the culprits for the trade below par in the Euro against the Dollar.
     
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  10. bigbull

    bigbull Active Member

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    The rout in EEMs and the EURO is just the beginning. Remember. This is a process, not an event.

    There has been unconfirmed reports that a few speculative hedge funds and central banks, in countries like Brazil, are actively shorting the dollar as a fighting measure to at least halt the US Dollar rise. Whether it's true or not, I do not know. Most likely untrue on the latter.

    What I do know is there mad rush of capital from Europe and into the US just as there is massive shortage of floating Dollars in the market. If you add possible central bank intervention, cumulative short positions and a mad dash by backward looking funds looking to buy dollars as a last minute ditch effort to protect portfolios, you begin to understand how this will catch a life of its own.

    Case in point. At the company I work for, the financial firm that advises senior management on financial swaps, hedges, etc as a way to protect future production was way behind the eight ball by a mile. The firm recommended placing a collar in the COP -- Colombian Peso -- between $2.850 and $3.050 COP/USD as it tried to game what had been a range bound currency pair. At todays exchange rate, there is a real risk the swap is called in. It just comes to show you how some of these funds will have to scramble and buy US Dollars providing a floor in the exchange rate, and separately, oh how very wrong they and other firms have been.


    All of this a product of three big events that are unwinding in front of our eyes:

    (1) The structural failure that is the Euro,
    (2) Massive overseas obligations in EEMs held by foreign funds, and
    (3) Funds that are off-bounds with respect to how they are positioned in relation to the Dollar.

    Turkey is influencing exchange rates, but it's more of side distraction.

    If the Fed or BOE steps in by halting rate increases, well, it will buy these institutions/entities a few more months. That is it.

    Some of these EEMs exchange rates, specifically the Euro, has still ways to go.

    As mentioned earlier on this thread, everything is getting sold-off in EEMs, but names like a BABA that are largely insulated by it tall are worthy buys here.
     
    #10 bigbull, Aug 15, 2018
    Last edited: Aug 15, 2018
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