Technical Analysis : Emerging Stocks Are ‘in Vogue,’ CLSA Says.

(Bloomberg) -- Emerging markets are “back in vogue” and set for six months of gains, according to the “breadth” indicator used by CLSA Asia-Pacific Markets to predict rebounds.The MSCI Emerging Markets Country Breadth gauge turned bullish as 20 percent of the countries in the benchmark index climbed above their 40-week weighted moving average after a decline to less than 10 percent, CLSA analysts Laurence Balanco and Tiara Fontanilla wrote in a report yesterday. They advise investors to “overweight” China, Taiwan and South Africa.

The MSCI Emerging Markets Index rallied 14 percent in March, the best monthly advance since December 1993 and almost twice the 7.2 percent added by the MSCI World Index. Funds investing in developing markets drew $2.3 billion in the week ended March 25, the highest inflows this year, according to data compiled by Cambridge, Massachusetts-based EPFR Global. CLSA’s MSCI Emerging Markets Country Breath indicator has shown buy signals five times since 1997. On the previous five occasions, the benchmark index yielded an average return of 4.6 percent over the next month and 16 percent over the next six months, CLSA said.

The emerging markets gauge is also on an “uptrend” relative to the MSCI World Index, the brokerage said. A recent “break” above its 40-week exponential moving average paves the way for “a test of the 2008 highs,” about 10 percent higher than current levels, the report said. Using the same analysis, Chile, China, Israel, Malaysia, Morocco, Peru, the Philippines, South Africa and Taiwan are attractive relative to the MSCI Emerging Markets Index, the CLSA analysts said. Investors use moving averages of closing prices over different periods to predict levels of resistance and support for prices.