More Bad News on Emerging Markets: Weekly International ETF Report
Since January 24, emerging market investments have fallen off the radar for investors in Europe, Japan and the United States. That painful Friday 
Emerging market economies were still reeling from the previous day's release of the January HSBC Flash China Manufacturing PMI, which hit a six-month low of 49.6. (A reading below 50 indicates contraction.) The report sent a panic signal to emerging market nations which rely on China to buy their exported commodities and raw materials for manufacturing.
HSBC had more bad news for emerging market economies on February 9. The January HSBC Emerging Markets Index indicated a slowdown in growth to the weakest level in four months, declining to 51.4 from December's 51.6.
Pablo Goldberg, Global Head of Emerging Markets research for HSBC provided this Commentary for the report:
'Although both the aggregate Manufacturing and Services EMI deteriorated in January, they remain in expansion territory. Interestingly the future activity index shows a pick-up for manufacturing and a drop for services, suggesting expectations of an export-led recovery. 'Manufacturing PMIs are still showing economic resilience, although not without increasing divergence between countries. Among the winners, we have countries in a clear cyclical recovery that are being lifted by the improvement in the developed markets: Mexico, Poland and the Czech Republic. By contrast, PMIs decelerated in Turkey, Brazil, Russia and Indonesia. These are among the countries where deteriorating external balances have prevented monetary easing or forced tightening. 'Two positive indicators suggest there are reasons to stay moderately upbeat on the resilience of EM economic activity. First, new export orders have improved for many countries and, second, the forward-looking new orders-inventory mix continues to improve. On the negative side, the China manufacturing PMI has fallen below 50, which is bad news for many emerging markets. Moreover, a combination of activity and price PMIs suggests the room for further monetary easing has closed. Lastly, the employment PMI shows a deterioration across the board, which could eventually hurt domestic consumption.'
The chart below depicts the performance of the iShares MSCI Emerging Markets Index ETF (NYSEARCA:EEM) during the past 180 days.(Chart courtesy of Stockcharts.com.)
The most prominent feature on the EEM chart is the bearish head-and-shoulders pattern, running from September 9 through December 13. On February 3, a 'death cross' appeared the EEM chart, when the 50-day moving average crossed below the 200-day moving average. Friday's 0.57 percent advance to $38.73 per share brought EEM to 3.34 percent ($1.34) below its 50-day moving average of $40.07. Although a bullish, inverse head-and-shoulders pattern has appeared on the EEM chart since January 24, the market's reaction to the January HSBC Emerging Markets Index might defeat this pattern.
EEM has a Relative Strength Index of 47.08. The MACD had just crossed above the signal line on Friday, suggesting the likelihood of a continued advance during the immediate future.
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