Buying the right country fund could generate steady profits in the coming months, offering safe haven from worldwide trade tensions that threaten to upend the decade-long economic expansion. These versatile instruments track local indices around the globe, offering exposure to nations that might benefit from a breakdown in U.S.-China trade relations, as well as mavericks that have grown local economies without dependence on international supply chains.
The Nikkei Asian Review illustrated the high stakes at play for China's neighbors, reporting on Wednesday that Apple Inc. (AAPL) has asked suppliers to look at shifting 15% to 30% of production capacity out of China and into other Asian countries. However, funds tracking the markets in Philippines, Vietnam, and other localities that might benefit from a manufacturing exodus have slumped in recent months, even though trade talks are hanging by a thread. It makes sense for buying interest in these issues to increase rapidly if next week's meeting between Trump and Xi fails to ease tensions.
The VanEck Vectors Vietnam ETF (VNM) came public in the mid-$20s in August 2009 and posted an all-time high at $32.20 in October. It carved a double top pattern into 2011 and broke down, entering a persistent downtrend that synchronized with other emerging markets after commodities topped out in 2011. Selling pressure eased in the mid-teens at the start of 2012, but the fund broke that trading floor in 2015 and dumped into the low teens.
A triple bottom reversal yielded a steady 2017 rally that ended in April 2018 at the .618 Fibonacci retracement level of the 2014 into 2016 selling wave. The fund drifted lower into January 2019 and bounced once again, spending the past five months testing resistance at the 50-month exponential moving average (EMA) near $16.50. This price level marks an excellent place to watch as the U.S. and China play their end-game, with a moving average breakout potentially setting off a strong buying signal.
The iShares MSCI Switzerland ETF (EWL) is one of the oldest country funds trading on the NYSE, with a public history going back to the 1990s. A multi-year uptrend topped out at $20.69 in 1999, giving way to a downtrend that settled in the single digits in 2003. The fund posted prolific gains during the mid-decade bull market, finally topping out in the upper $20s in 2007. EWL fell to a five-year low in the low teens during the economic collapse, bottoming out in March 2009.
The subsequent uptick took two years to complete a round trip into the 2007 high and an additional two years to carve the handle of a multi-year cup and handle pattern. It broke out in 2013 and stalled in the mid-$30s, with that level marking resistance for the past five years. However, price action has nearly completed a multi-year inverse head and shoulders pattern that targets the upper $40s after a breakout.
The iShares MSCI Thailand Capped ETF (THD) could also benefit if U.S. manufacturers seek new locales to build facilities now hosted in China. The fund came public near $50 in April 2008 and entered an immediate downtrend that accelerated during the economic collapse. THD posted an all-time low at $18.04 in October 2008 and bounced near that level in March 2009, gaining traction into 2011, when it topped out in the low $70s.
The fund cleared resistance in 2012 and lifted into the mid-$90s one year later, ahead of a multi-wave decline that found support in the low $50s in the first quarter of 2016. A 2018 breakout attempt reversed at $103.71, yielding a rounded consolidation that may carve the handle of a multi-year cup and handle pattern. A breakout could generate impressive upside, with a measured move target near $140.
The Bottom Line
A basket of country funds could outperform broad benchmarks in the coming months, taking advantage of their insulation from worldwide trade tensions.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.