TCEHY - IEMG: EM Currencies' Rally Offers A Boost But EM Equities Remain Just A Hold

2023-11-20 20:56:40 ET

Summary

• Emerging Market currencies have rebounded, boosting the iShares J.P. Morgan USD Emerging Markets Bond ETF and iShares Core MSCI Emerging Markets ETF.
• IEMG is a large ETF with an attractive valuation and low cost, making it a good choice for long-term investors.
• The technical setup for IEMG remains lackluster, and improvement in the chart and price trend is needed for an upgrade.

Emerging Market currencies have come rip-roaring back. I track changes in the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) for clues on where the EM equity space may be headed. In about a month’s time, the fund is up more than 6%, helping to lift the iShares Core MSCI Emerging Markets ETF (IEMG) off its October low.

I reiterate my hold rating on IEMG based on a continued attractive valuation, but also considering ongoing technical challenges.

EM Currency ETF Bounces

According to the issuer , IEMG seeks to track the investment results of an index composed of large, mid, and small-capitalization emerging market equities. The fund offers investors exposure to a broad range of emerging market companies at a low cost. IEMG, cheaper than the iShares MSCI Emerging Markets ETF (EEM), is an ideal choice for long-term investors seeking ownership of EM stocks.

IEMG is a very large ETF with more than $71 billion in assets under management and it yields significantly more than the S&P 500 at 2.32% as of November 17, 2023. Share price momentum has been soft this year compared to the SPX, but a recent burst of buying activity offers a ray of hope for long-term investors heading into year-end. With an exceptionally low 0.09% annual expense ratio , IEMG earns a strong A ETF Grade by Seeking Alpha, though it is considered a somewhat high-risk fund. Liquidity is robust, though, as its 90-day average volume is more than 11.3 million shares and its 30-day median bid/ask spread is narrow at just two basis points, per iShares.

Digging into the portfolio, the 3-star, bronze-rated ETF by Morningstar is primarily a large-cap ETF with just 22% of its total assets considered mid- or small-cap in size. What’s more, there’s balance among the various styles, with Blend being the largest weight. Trading at just 11 times earnings, I see significant value among EM equities, though critics suggest that owning too much China is a key risk.

IEMG: Portfolio & Factor Profiles

IEMG also boasts more sector diversification compared to the concentrated S&P 500. Like large-cap US equities, IEMG’s biggest sector weight is the Information Technology sector, and Financials comprise more than one-fifth of the allocation. There is little in the way of Real Estate, Utilities, Energy, Health Care, and Consumer Staples sectors. Paying close attention to happenings with its largest tech and consumer holdings is prudent as Taiwan Semi (TSM), Tencent (TCEHY), Samsung (SSNLF), and Alibaba (BABA) can be volatile at times.

IEMG: Sector & Holding Composition

Seasonally, IEMG has been lackluster throughout the year, but a mid-December through late January rally has been something the bulls can look forward to, according to my analysis of data from Equity Clock . Thus, being opportunistic over the coming weeks could be the way to play your entry.

IEMG: Neutral Seasonal Trends, Some Bullish History at the Turn of the Year

The Technical Take

Not a whole lot has changed on IEMG’s chart. Notice in the graph below that shares have generally traded sideways for the last year, ranging from just under $46 to slightly above $52. Be on the lookout for a bullish upside breakout from this zone - if that were to take place, then a bullish measured move price objective to just shy of $60 would be in play based on the height of the range.

The choppiness is confirmed by IEMG’s long-term 200-day moving average, which is rather flat in its slope, indicating no clear uptrend or downtrend. What’s encouraging, however, is that the RSI momentum oscillator at the top of the chart recently notched a fresh multi-month high - that could auger for higher prices before long, as momentum often turns before price. Still, with a high amount of volume by price in the $47 to $51 zone, rally attempts are guilty until proven innocent.

Overall, the technical setup remains lackluster as trendless price action persists.

IEMG: Stronger Momentum, But Shares Remain Rangebound

The Bottom Line

I reiterate my hold rating on IEMG. I continue to see a compelling valuation, but I would like to see improvement in the chart and price trend before upgrading the ETF.

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