Emerging Markets: Attractive Entry Point As Downside Is Limited In 2019

In our emerging markets forecast 2019 published four months ago we identified current price levels as critical support. As 2019 kicks off we believe the emerging stock markets have limited downside. Admittedly, this goes against the perception which is one of catastrophe in emerging markets. Not only the chart pattern but also the correlation with crude oil suggests that the downside is limited in emerging markets in 2019, and why a juicy entry opportunity may be shaping up especially in some of our top 4 emerging markets for 2019.

Emerging markets ‘feel’ bad

Especially in 2016 and 2017 emerging markets were on fire. However, 2018 was a small disaster, and if ‘felt’ worse largely because the U.S. stock market was going up for most part of the year.

It is this ‘feeling’ and ‘perception’ of a market that can be so misleading, and that’s where news headlines really come into play. Look at the following news items from the past few days:

Apple cuts outlook, sees ‘challenges’ in China and emerging markets (Channel Asia News)

Emerging Markets Seen Bringing More Pain to Investors in 2019 (Bloomberg)

Emerging markets are likely to bring much more pain to investors in 2019 (Economic Times)

It becomes a different story once looking at the chart(s). As per our method charts are the only way to neutralize feelings, emotions, perceptions and opinions.

So let’s move on to the charts, and not only the emerging markets chart but also one maybe unexpected correlated asset: the chart of crude oil.

Emerging markets chart ‘looks’ good

Last year’s retracement brought the EEM ETF to its breakout level. We said:

This may be a normal retest of a breakout which was 9 years in the making. Note: the energy of a pattern that is in the making for 9 years is significant.

However, if the consolidation continues for a little longer then the 36 level followed by 30 will provide support. In that case emerging markets will hit 40 to 45 in 2019 as they need more time to recover.

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