Emerging Market ETFs: Down But Not Out

 |  Includes: EEM, VWO
by: Tom Lydon

Investors looking for a technical breakout in emerging market ETFs that have underperformed in 2013 were disappointed by weak economic data this week.

The iShares MSCI Emerging Markets (NYSEARCA:EEM) sold off Wednesday after a solid two-week rally. Renewed concerns over a global growth slowdown have surfaced after weak manufacturing data has come out of China.

"The economic data has been weak across the board," said Peter Jankovskis at Oakbrook Investments LLC in a report. The figures are "consistent with a slower growth horizon for the world, which would have negative implications for many emerging markets," he said.

Recent economic data out of China has indicated that manufacturing from the developing country to the U.S. and Australia has slowed down. The fact that manufacturing in China has slowed in April is indicative of a general malaise for global growth going into the second quarter, reports Julie Leite for Bloomberg BusinessWeek.

A forecast of 84 economists surveyed by Bloomberg indicated that an average forecast of 50.5 was reported, where a reading of 50 is the cut-off from expansion to contraction.

Evidence of the flock out of emerging markets is marked with outflows from the Vanguard FTSE Emerging Markets Fund (NYSEARCA:VWO), which has lost $1.55 billion in outflows. VWO is left with $57.69 billion in AUM, reports Wallace Witkowski for The Tell on MarketWatch.

In-depth analysis of emerging markets still indicates a favorable outlook for this area of the market. Ben Marks for Forbes reports that most emerging market countries have fundamentals in place for continued growth, and the lagging performance that is taking place can be viewed as a point of entry for those investors who have a value focus. Investors should look for countries that have political stability, stable currency, and economic stimulus and a young population.

iShares MSCI Emerging Markets

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Tisha Guerrero contributed to this article.

Full disclosure: Tom Lydon's clients own EEM.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.