3 Emerging Market Country ETFs Showing Relative Strength

During 2018, investors in emerging market economies have had to deal with slower economic growth in China, a currency crisis in Turkey and volatile elections in Latin America, all while assessing what impact trade tariffs and a strong U.S. dollar have on these developing countries.

Indonesia is one emerging market that has bucked the trend. The archipelago country boasts Southeast Asia’s largest economy, with its gross domestic product (GDP) expected to grow from 5.3% in 2018 to 5.6% in 2020 per Statista data. Investors have also lauded the country’s trade deal with the European Free Trade Association (EFTA) that was signed off on Dec. 16 in Jakarta. Under the agreement, Indonesia receives better access to export products such as coffee, palm oil, fisheries, textile and furniture.

"This settlement is a milestone for Indonesia's relations with the four EFTA countries," Trade Minister Enggartiasto Lukita said in a statement released after the trade deal was finalized, per Reuters.

Neighboring emerging market the Philippines penned a deal with EFTA in 2016 and commenced free trade talks with Washington in September, according to another Reuters article. Its country exchange-traded fund (ETF) has also outperformed other emerging markets over the final two months of 2018.

Traders who favor relative strength strategies should add these three country-focused ETFs to their watchlist. Let's analyze several trading ideas.

iShares MSCI Indonesia ETF (EIDO)

Created in 2010, the iShares MSCI Indonesia ETF (EIDO) aims to provide similar returns to the MSCI Indonesia IMI Index. The fund, with assets under management (AUM) of $483.81 million, provides exposure to large-, mid- and small-capitalization Indonesian companies. As of Dec. 21, 2018, EIDO is down 7.78% year to date (YTD) but has returned 10.15% over the past three months. The ETF has an expense ratio of 0.59% and offers investors a 1.93% dividend yield.

EIDO's share price fell nearly 30% between February and October before buying interest stepped up in November. A pennant is forming above the 200-day simple moving average (SMA) this month that suggests continuation to the upside. Traders should look to open a long position if the price breaks above the pennant's upper trendline. Consider using the measured move method to set an appropriate profit target. For example, calculate the move between the October swing low and December swing high and add it to the breakout point. ($4.52 + $25.4 = $29.92 profit target). Think about placing a stop-loss order below the pennant's lower trendline.

VanEck Vectors Indonesia ETF (IDX)

Launched in early 2009, the VanEck Vectors Indonesia ETF (IDX) seeks to track the performance of the MVIS Indonesia Index. The fund's basket comprises 47 stocks, primarily holding large-cap Indonesian companies with a tilt toward the financial sector. Trading at $21.81, with AUM of $44.32 million and paying a 2.08% dividend yield, IDX has returned -10.75% YTD. Performance has improved over the past three months, with the fund gaining over 9% as of Dec. 21, 2018.   

The ETF's price broke above a downtrend line dating back to mid-February in November and is currently consolidating above the 200-day SMA. Those who anticipate further gains should wait for the price to break above an area of consolidation at $22.25 before taking a trade. Like EIDO, look to book profits using the measured move technique ($3.76 + $22.25 = $26.01 profit target). Protect trading capital with a stop sitting below the 200-day SMA.

iShares MSCI Philippines ETF (EPHE) 

The iShares MSCI Philippines ETF (EPHE), formed in 2010, attempts to provide similar investment results to the MSCI Philippines Investable Market Index. The fund provides broad coverage of stocks that trade on the Philippine Stock Exchange with substantial exposure to the financial, consumer cyclical and utilities sectors. Although the ETF's average spread is 0.11%, traders should use limit orders as the Philippine market is somewhat illiquid. As of Dec. 21, 2018, EPHE has a disappointing YTD return of -18.04% but has performed better over the past three months, returning roughly 4%. Investors pay a reasonable 0.59% management fee that is mostly offset by the fund's 0.47% dividend yield.

A broad double bottom pattern appears to be forming on EPHE's chart which indicates a possible trend reversal. Traders can either buy the ETF when the price breaks above December's pennant pattern or wait for a close above the double bottom's neckline. Consider placing a take-profit order at the $36 level, where the fund's price may encounter resistance from a horizontal line. Stops could sit just below the 50-day SMA to close losing trades.