This post was just published on ZYX Emerging Markets ETF Alert.
Emerging markets are starting out the year on a tear on the fiscal cliff resolution. However, the optimism is misplaced. Only one part of the three-part puzzle has been addressed. The three parts are: taxes, spending, and debt ceiling.
The fiscal cliff deal only partially addresses taxes and totally kicks the can down the road on spending and debt ceiling. Republicans are on the record to put up a stiff fight on spending and debt ceiling issues. Democrats are on the record that they are still going to try to further raise taxes by closing loopholes.
All of these issues are supposed to be resolved in the next couple of months. Expect a more divisive debate ahead. As market participants realize the foregoing, enthusiasm being seen this morning may wane.
What To Do Now?
It is best to not chase the strength in emerging markets. The plan is to wait for a pullback. In due course we are likely to suggest initiating or adding to positions in Africa, India, Malaysia, Mexico, Vietnam, Korea, and Russia.
We will be providing specific buy signals over the coming days and weeks as appropriate.
Consider continuing to hold the present positions.
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