Some emerging markets (EEM) have shown amazing returns in the last 24 months. No wonder InvestingHaven‘s research team is writing about them in that same time period. Think of India as our top favorite forecast and how it literally outperformed all other emerging markets, in line with our expectations. It’s time now to turn our attention to 2019, and come up with our very best 2019 forecast for emerging markets. We identify our 4 top emerging markets for 2019 and beyond.
In general, we expect a new bullish trend to start now in emerging markets for reasons laid out in detail in this recent article Emerging Stock Markets: Beautiful Test Of 2018 Bull Market Breakout. If this holds true for emerging markets as a group then the number 1 priority for investors is to identify the top emerging markets for 2019 and beyond.
Note: we focus only on the charts in this article. That’s in line with our ‘start with the chart’ principle. The key principle is that the chart must give green light before even thinking of making an investment. The additional research like fundamentals and outlook can only happen if the chart looks constructive, promising and has clear patterns.
We invite readers to do additional research on each of the 4 emerging markets that have a bullish chart setup for 2019 and beyond.
#1 top emerging markets in 2019: India
India is one of our top forecasts in the last 24 months. This is what we wrote 2 years ago India Stock Market Strong Buy, Much Higher Prices Coming In 2016.
The long term chart of India, and why it justifies being our top emerging market for 2019, is the fact that India tries to move from the current rising channel to a higher one (not created yet on the chart). That’s the key in forecasting: try to identify a point where a market is heading towards.
We strongly sense that India will accelerate its rise.
If that’s what is happening right now we will see a similar move as the one in 2005 where India moved to a higher level channel.
From a fundamental perspective we see confirmation that India deserves to hold the top spot as the top emerging market for 2019. The GDP growth figures are mind boggling. In the recent quarter India’s GDP growth was between 7% and 8% as per this official data point.
Defining top spots where investors can put their money is mostly a combination of a great chart setup to start off with still combined with great fundamentals and outlook. All these data points look great for India, hence India being our number 1 top emerging market for 2019!
#2 top emerging markets in 2019: Brazil
Brazil was also one of our favorites on our top emerging markets list last year.
From a chart perspective this recent breakout last year is gorgeous, primarily because it got tested successfully recently.
As emerging markets were going through some rough waters a couple of months ago Brazil respected its support. Relative strength is the reason why we believe that Brazil will be a top emerging market in 2019.
From a fundamental perspective Brazil is not growing as fast as India as per this data set. However, from a fundamental valuation perspective, Brazil is one of the cheapest markets as per below Bloomberg data point.
Given the strong recent rise with the cheap valuation we will likely see 100k points in 2019 for our #2 top emerging market in 2019.
#3 top emerging markets in 2019: Thailand
Maybe unexpected but Thailand also qualifies as a top emerging market for 2019 and beyond.
Look how the breakout on its chart got successfully tested recently. This is a similar setup as Brazil though Thailand has a clearer pattern in terms of the channel in which it is moving. We expect this lower channel to be the dominant one for 2019, and it might bring the index from the current 1700 points to 2200 in 2019 or 2020.
#4 top emerging markets in 2019: China
Last but not least: China.
It may not be breaking out similar to the other 3 top emerging markets we highlighted above. The beauty about China is that it is testing secular support. This is what we explained last week in 3 Must See Charts On China’s Stock Market Selloff in 2018
We strongly doubt that China’s secular support will give away. We believe this market will need a bit of recovery time before it literally takes off in 2019 and beyond!
Interestingly, if history is any guide this chart suggests that a strong rally might take place later this year and/or in 2019. Note how every time in the last 13 years the SSEC fell to its support levels (lower green line) it took a couple of months to digest this decline, after which a very strong rise started. This is the underlying reason why China qualifies in our top 4 emerging markets for 2019.
Update on January 5th, 2019: the state of our top 4 emerging markets as 2019 kicks off
Moreover, and maybe more importantly, emerging markets are strongly correlated to the price of crude oil.
The second chart visualizes our point. Look at this multi-decade time period in which both assets have risen and fallen in tandem.
The price of crude oil has fallen to $43 recently. Although the chart type shown below is not great in forecasting a top or bottom it is clear how much support there is in the lower 40ies on crude’s chart. Moreover, crude fell from $75 to $43 in a matter of weeks, a decline of 43%. Both data points suggest to us that the crude oil decline is largely over.
In other words the crude oil correlation confirms our finding on the emerging markets chart pattern. Both suggest the downside in emerging markets is limited to a couple of percentage points in 2019. This finding is invalidated if and once both assets fall through their critical support levels, with a vengeance, which we consider a probability of less than 5%.
Almost half a year ago we published our top 4 emerging markets to watch in 2019: India, Brazil, Thailand, China. Let’s quickly review how they are performing against our forecast:
- India: as said in India Stock Market At Major Decision Point As 2019 Kicks Off there is hardly any trend change in India. On the contrary, this market sits a major multi-decade support. We need another few weeks, ultimately, 2 to 3 months, before we will see a new trend.
- Brazil is the outperformer. It reached all-time highs this week. This looks very bullish for 2019.
- Thailand is setting a lower low in recent weeks. Only if all emerging markets rise will it provide support. It is the weakest of all 4 emerging markets.
- China has sold off heavily, but still against our forecast there was just a 10% decline. China as well sits at major support, a make-or-break level with a decision point is here!
All in all we believe there are major opportunities shaping up in emerging markets, but risk management suggests we must see current levels hold strong as the prerequisite before going long. We estimte the probability at a minimum 80% that current levels provide a juicy long term entry point for smart investors!
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