Emerging Markets: Sentiment-Driven Investing I could, of course, regale you with the fundamental case for emerging market investing. But that would be a waste of time. Much like risky bets on biotechnology, emerging markets are a boom or bust asset class. If the mood is right, investors pile in and drive stock prices sky-high. When emerging market stocks enter a bull market, they do so in a big way. Over the long term, stock prices will converge to their intrinsic values. But stock prices can diverge from their objective values for years - even decades. So you need to look for a trigger that signals a shift in investor sentiment. On June 4, I cited SentimenTrader's study of the remarkable technical strength of emerging market stocks at the time. The iShares MSCI Emerging Markets ETF (NYSE: EEM) had put together its fourth straight session with a more than 1.7% gain. That was the iShares Emerging Markets ETF's longest winning streak since its inception in 2003. The other five times it saw streaks of at least three days, it averaged an impressive 13.6% return two months later. Six months later, the average return soared to a whopping 29.9%. How has SentimenTrader's prediction fared six months later? The iShares MSCI Emerging Markets ETF is up 33.98% over the past six months. SentimenTrader's analysis was spot-on. I also pointed out that you could swing for the fences with a leveraged emerging markets ETF. I recommended two such ETFs. The ProShares Ultra MSCI Emerging Markets ETF (NYSE: EET) delivers double the daily performance of the MSCI Emerging Markets Index. And the Direxion Daily MSCI Emerging Markets Bull 3X Shares ETF (NYSE: EDC) is a triple-leveraged version of the MSCI Emerging Markets Index. How did these three ETFs fare compared with the S&P 500? The chart below speaks for itself. So, after such a huge run, is it too late to invest in emerging markets? Not really. Emerging markets have been down and out for so long that they have plenty more room to run. Remember, even after this current rally, the iShares MSCI Emerging Markets ETF is trading below where it traded in October 2007 - more than 13 years ago! With big money piling into emerging markets, the timing is right for a sustained rally in this asset class. Time your investment correctly in one of these leveraged emerging market ETFs... And look forward to monster returns in 2021. Good investing, Nicholas |
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