Emerging market stocks showed gains after oil rose for seventh straight day and positive data out of the United States and other countries such as South Korea. The positive data shows that the global recovery is taking hold and getting stronger.
US new home sales rose above analyst predictions and jobless claims were at a four year low. On top of that, consumer confidence is advancing in the US, South Korea and France.
Many emerging market nations rely on the price of oil for their economy to boom. Lucky for them oil is up huge this year due to the spat with Iran and cutting oil exports to Europe and possibly the US. Russian shares are headed to seven month highs as the price of oil lifts their biggest oil company, OAO Lukoil (LKOH). Aside from Russia, Argentina posted huge gains due to oil increase as well.
The MSCI Emerging Markets Index is up 16% this year so far, while the MSCI World Index, which measures developed nations, was up 10%. Emerging market companies are currently trading at a cheaper rate to estimated earnings than the developed world. Developing countries currently trade at 10.9 times estimated earnings while the developed world trades at 12.9 times estimated earnings.
The Emerging Markets sector continues to show gains as oil helps boost many of the country’s economies. As of right now, emerging market shares are trading at a cheaper rate than the developed world. This is mainly because of the European debt crisis is weighing down the index.
As I wrote yesterday, companies associated with the S&P 500 are now 9% cheaper because corporate profits are rising faster than the index itself. This is an extraordinary opportunity for investors to get onboard with US equities at a discount rate. However, analysts are speculating that the 2012 rally could be taking a breather so watch for that before you dive in. As of right now I would sell European shares, buy US equities and emerging markets. In my opinion those are going to be best places to invest during 2012. The US recovery is gaining ground, the consumer is reviving and so are jobs. Emerging markets are riding the recovery wave as well. If you buy an oil dependent nation such as Russia or Argentina, watch out for the price of oil because if oil falls so does the oil dependent nation’s economy.