Will Emerging Markets Escape the Global Downturn? Part II - Bullish

Includes: DEM, EEM, SPY, VWO
by: HiddenLevers

by Sifiso Takirambudde

Have you heard? Emerging Markets are the new safe haven. If you’re not already on board, here are some basic things that may sway your opinion. First, a no brainer— growth in emerging markets is set to outpace developing markets. Second, Goldman Sachs and Morgan Stanley take bullish tones on the future of commodities markets, and most of the Oil and Copper demand stems from emerging market economies with solid growth prospects. It is important to note that both macro-economic pressures are still in play.

Post-recession, starting in early 2009, Emerging Markets ETFs have been running circles around the SPY. Here are a few – the WisdomTree Emerging Markets Equity Income ETF (NYSEARCA:DEM), Vanguard Emerging Markets Stock VIPERs ETF (NYSEARCA:VWO), and the iShares MSCI Emerging Markets Index ETF (NYSEARCA:EEM):

I expect this to continue as the developed world stumbles. Europe is no closer to resolving the recent flare up in debt issues by Greece than it was a year ago. If there is one comment to remember during this restructuring debate, it is this— “The lengthening of maturities raises very difficult questions, there’s a strong chance it will be the equivalent of a default.” These are the words of the Bank of France Governor Christian Noyer.

On this side of the Atlantic, we Yanks have our own debt issues. The world is growing more nervous as we approach the 02-August legislative deadline. Will the U.S. budget deficit ceiling be raised? If no accord is reached, we are merely two months away from witnessing the U.S. default on its debt, and politically induced too. Considering this, along with housing and unemployment still looming large, I don’t know how the world’s largest economy will avoid a double-dip recession.

By the way, did everyone catch the hilarious sketch on the eurozone crisis and the DSK affair on SNL last weekend?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.