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Have Emerging Markets Finished Bouncing?

 
Presented by  Gareth Soloway April 01, 2011
Have Emerging Markets Finished Bouncing?
Emerging markets have been the catalyst for the stock market rally since the March 2009 lows. The story that has been sold to the public by the talking heads in the financial media has been the expansion of China, India, Brazil, and other emerging economies. The truth is that these countries need to buy and produce oil in order to expand. Oil is purchased in just two currencies, the U.S. Dollars, and the British Pound. The U.S. Dollar Index which is a measurement of the U.S. Dollar verses six major currencies seems to decline on a daily basis making oil and most commodities much more expensive for everyone. The U.S. Dollar Index is now trading lower by 15.0 percent since June 7, 2010. Therefore, countries that must import oil are spending a lot of U.S. Dollars to buy the product.

The emerging markets such as China, and India, are spending an enormous amount of their U.S. Dollars on oil. Please remember that both of these countries have a combined 2.5 billion people living in them. Oil is needed by these nations in order to function and produce goods that they are selling to the west. The high price of oil should start to have a negative effect on these countries very soon.

Right now if you look at a chart of the iShares MSCI Emerging Markets Index (NYSE:EEM) there is very good chart resistance coming into play soon. Recently, the EEM found a near term low on March 16, 2011 at $44.25 a share. Today the EEM is trading higher by 0.40 cents to $47.25 a share. This is a $3.00 bounce for this ETF in just eight trading days. Whenever, a stock or ETF makes a move this sharply in such a small time period it is due to pullback or consolidate. Other ETF's that could see pullbacks soon would be the iShares FTSE China 25 Index Fund (NYSE:FXI), and the India Fund, Inc. (NYSE: IFN).

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