Time to Play Some Emerging Markets

 | Oct 19, 2011 | 10:14 AM EDT  | Comments
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Stock quotes in this article:

IDX

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EWY

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EWM

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TUR

As I've noted in the past, the fourth quarter is when emerging markets fund managers breathe a sigh of relief. This is the time of year when their markets perform best and help make the often stomach-churning day-to-day volatility worthwhile.

Once emerging markets take off, you can make a lot of money very quickly.

Now that we are well into October, it's worth assessing where we stand so far in Q4. Much like the S&P 500, emerging markets have bounced strongly, with the MSCI Emerging Markets Index up 11.8% just in October.

That sounds pretty darn impressive until your realize that the MSCI Emerging Markets Index is still trading far below its 200-day moving average. And emerging markets are still well on the wrong side of the "death cross" (the 50-day moving average is below the 200-day moving average.)

If you're a glass-is-half-empty kinda girl or guy, you might see emerging markets' recent move as just another bear market head fake.

But with the Q4 seasonality so strong in emerging markets, I don't think you can wait for a perfect chart to get back into the markets. The cost of staying out is just too high.

I always look to reenter an emerging market -- especially in Q4 -- as soon as it trades above of its 50-day moving average.  I'm more prone to getting whipsawed, as I was with the Market Vector Indonesia Index ETF (IDX) in late August. But you make up for these pinprick losses very quickly once markets start to shoot upward. Based on this rule of thumb, most of the emerging markets I follow are right at the cusp of reentry.

As of yesterday's close, none of the BRICs are trading above their 50-day moving averages. Brazil and India are flirting with that level, but aren't quite there yet.

Among the original Asian Tigers -- Hong Kong, Singapore, South Korea and Taiwan -- only the iShares MSCI South Korea Index (EWY) is trading above the 50-day moving average. Cast your Asian investment net a little wider, to include Indonesia, Thailand, and Malaysia, and you can add the iShares MSCI Malaysia (EWM) Index to your list of buys.

In Latin America, Mexico is trading right at the 50-day moving average, while Chile is still well below it.

Elsewhere, Turkey, one of the most overlooked global economic success stories of the past decade, is now a buy with the iShares MSCI Turkey Investible Index (TUR) trading above its 50-day moving average.

So the combination of South Korea, Malaysia and Turkey don't make for the most obvious of global portfolios. But I'm betting there's a good chance they'll make you money over the next three months.

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