Emerging opportunity? Why the 'trade of the year' may still have room to run

Emerging market equities have thrived this year as the U.S. dollar has lost value against rival currencies, and some see even more upside ahead in the emerging markets space.

"This has been the trade of the year and has recently stumbled on the back of [Fed Chair Janet] Yellen's hawkish comments. But we think this trade still has legs," Gina Sanchez, CEO of Chantico Global, told CNBC's "Trading Nation" on Monday.

The greenback will likely appreciate in the near term, Sanchez said, which is seen as a negative factor for emerging markets. However, she said such strength in the greenback would be a buying opportunity rather than a long-term setback for emerging market equities. A stronger U.S. dollar relative to emerging market currencies typically negatively impacts the firms in their respective countries.

It is unlikely the dollar strength will continue in any meaningful way, Sanchez said, as she doesn't believe the economic backdrop is healthy enough to prop up a strong greenback. This comes even as the Federal Reserve is in the midst of a monetary tightening cycle, hiking interest rates, which has the potential to breathe new life into the dollar.

"The biggest driver for emerging markets has been the global recovery in growth in many key emerging market countries. We've seen significant catch-up recoveries in Brazil, Russia and Turkey," she said.

One of the largest emerging markets exchange-traded funds, the EEM, has appreciated 31 percent this year, on pace for its best year since 2009.

Peering into the fund, the largest holdings are Chinese and other Asian technology companies, such as Tencent, Alibaba and Baidu. These firms, Sanchez said, are actually the weakest part of the emerging markets story, as China enters into a cycle aimed at tightening capital outflows.

"These holdings represent a risk to the overall story," Sanchez said, but her outlook for growth in the emerging markets outweighs the risks faced by Chinese technology firms.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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