In QE's Shadow, Watch These ETFs
Pacific Park Financial Inc. | Dec 12, 2013 03:16PM ET
Emerging market ETFs are pulling back sharply from gains that they had achieved in recent months. The countries with the largest drops in the past few days are those that are most dependent on foreign capital to finance their super-sized deficits. In essence, speculation that some of the world’s central banks may pare back the printing of money is adversely affecting funds like WisdomTree India Earnings (EPI) and iShares MSCI South Africa (recommended throughout 2013 — performance chasers may simply be “dressing the windows” for clients. Momentum is still likely to carry them further, but make certain to have your sell discipline intact should lofty valuations tempt profit-takers early in 2014.
The run-up in transportation stocks, regional banking shares as well as industrials tell a different story. Mainly, energy prices have dipped and the Fed will likely succeed in its quest to keep interest rates in check.
In QE We Trust
Granted, some folks will tell you not to fear the “taper” because they believe the U.S. economy is close to sustaining itself without emergency level stimulus. I’m not one of those folks. On the contrary, most of the economic growth can be directly tied to Fed intervention and any genuine move away from the rate manipulation would likely stoke recessionary flames. That said, I do not believe our central bank or others around the world are willing to let their economies sink or swim on their own. The answer the developed world has come up with is to continue printing money electronically. Stock-market corrections notwithstanding, the trend higher is likely to remain until the world’s investors begin to lose faith in the very notion of QE intervention.
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