How and When Should You Buy Emerging Markets?

Historically, emerging markets have grown on the back of the Western world. As you would expect, it’s because emerging markets manufacture and distribute a lot of the products around the world.

This is fast changing.

Western world economic growth is slowing — even the US has had to use ‘bad weather’ as an excuse for its low economic growth. Alternatively, emerging markets are fast becoming the major driver of global growth.

The overall position of emerging countries is stronger today than ever before. In fact, legendary investor Marc Faber said at the World War D conference that ‘China is more important to the world’s future than the USA’!

However, people tend to forget that emerging markets extend beyond Chinese shores.

Emerging markets now make up over 50% of global GDP growth. That’s up from 35% in the 1990s. This number will likely be a lot higher in the next 10 years. Emerging economies could grow two to three times faster than developed nations like the US, according to International Monetary Fund estimates.

And this is why we believe that emerging markets are cheap. Right now, buying into emerging markets is akin to buying in at the market bottom.

You’re probably wondering, what’s the best way to access to this growth story? You can either buy an emerging market ETF or you can invest directly in individual stocks.

We asked emerging markets analyst Ken Wangdong for his view. Ken knows where to find the big returns. Growing up and working in China for half his life, he’s dedicated to finding emerging market investment opportunities. He says, ‘Why buy an ETF when you can potentially get better returns buying the best shares which drive the ETF upwards, but avoid the bad shares that drag it down?’

You can catch more from Ken in the Megatrend Master Series. It’s an online multimedia event, which starts tomorrow. It’s free to sign up.

Ken’s right about picking individual stocks. But sometimes there is a role for ETFs. And if you’re inclined to buy an ETF, it pays to know whether now is a good time to do so or not. So, keeping to the theme of emerging markets, today I’ll look at the Vanguard Emerging Markets ETF [NYSEARCA:VWO]. Let’s take a look at the technical picture. Each bar represents one week.

Unlike many other charts, the Vanguard Emerging Markets ETF technical pattern is quite simple to understand — it’s been in a sideways channel since the beginning of 2012.

The long-term support and resistance lines are clearly defined. Support is at around $37.60 and resistance is at $44.00. A number of times since 2007, the ETF has bounced off these support and resistance levels.

Currently, trading at $44.01, the ETF is in close proximity to the major psychological resistance level again. It just broke though this crucial $44 level with strong momentum — it hasn’t been able to sustain this trend since 2010.

I haven’t shown this in the chart, but the index is moving up quickly, on falling volume — this is a very bullish move. Add the fact that the US S&P 500 and Dow Jones Industrial indices have moved higher; emerging market ETFs should follow suit soon.

Read the rest of this article at Money Morning