As we all have been seeing in the nightly news there has been a lot of turmoil erupting around the world as of late. Food riots began occurring about a month ago in Tunisia, and Algeria. This week massive riots and protests in Egypt erupted as the government in that country is in complete disarray. Many investors and traders are now pointing to the extremely high inflation levels in the world as the cause for all this turmoil. Many of the emerging stock markets have already rolled over and began selling off sharply as these growth nations now try and fight inflation by raising interest rates. Everyone knows that when a country is forced to raise rates in order to fight inflation growth will slow as the easy money and credit come to a halt. This week we shall focus on the top three emerging markets that must increase interest rates in order to curb the out of control inflation that is effecting the world.
First let us take a look at iShares MSCI Brazil Index (ETF) (NYSE:EWZ). This leading emerging market ETF topped out on November 4th, 2010 at $79.21 a share. The popular emerging market ETF closed at $72.55 on January 28, 2011. That is a 9.0 percent correction since the November 2010 highs. On January 19th, 2011 the Brazilian central bank raised its key interest rate to 11.25 percent from 10.75 percent in order to fight inflation. Imagine the United States raised its benchmark Fed funds rate by three quarters of a point, or 0.75 percent from its current zero percent rate, the U.S. stock market might crumble. Inflation in Brazil is being reported at 5.91 percent and is expected to remain above 5.00 percent for the remainder of 2011. The EWZ will have some daily chart support around the $71.00 level. However, the stronger weekly support levels are around the $68.00 area and ultimately the $64.00 level. Make clear note of these levels on your charts, trade accordingly as the stock will react.
India is the second largest populated emerging market around the world. Many traders and investors will follow or trade The India Fund, Inc. (NYSE:IFN). This leading emerging market fund has declined sharply since topping out on November 8th, 2010 at $40.94 a share. As of January 28th, 2010 the IFN closed at $29.40 a share. The decline from the November 2010 high is nearly 29.0 percent. A decline of 20.0 percent or more in an index is considered bear market territory. Leading Indian stocks such as Tata Motors Limited (ADR) (NYSE:TTM) have been under pressure since late November 2010. The IFN will have some daily chart support around the $28.50 level. The weekly chart support will be around the $26.00 area.
China is the most populated country in the world with over 1.3 billion people. This country is now the second largest manufacturer and economy behind the United States. China also owns the largest amount of U.S. debt of any single nation at 7.5 percent or nearly $1 trillion. The iShares FTSE/Xinhua China 25 Index ETF(NYSE:FXI) topped out on November 8th, 2010 right along with the other emerging market funds at $47.99 a share. On January 18th, 2010 the FXI closed down by $1.11 to $42.03 a share. This is a 12.0 percent decline from the November 2010 highs. China has recently raised its benchmark interest rate in late December 2010 by 25 basis points to 5.81%. The People's Bank Of China (central bank) also increased bank reserve requirements to try and curb its hot real estate market. The central bank has even gone so far as to now require a 60 percent deposit or down payment for buyers in order to purchase a second home in China. The popular FXI will have some daily chart support around the $42.00 level. The weekly support levels are $39.50 and ultimately $36.00. Again, take special note of these levels. These are key levels in that money making opportunities will be presented if/when price should reach them. At that point you will need to know which side of the market the higher probability presents itself.