Trading Nation

Emerging markets are trading in correction territory — but some call the stocks a buy

Trading Nation: Emerging markets under pressure
Trading Nation: Emerging markets under pressure

Emerging market stocks fell deeper into correction territory on Friday and were on track for their worst week in nearly two months.

But some see opportunity — if you have the stomach.

"These emerging markets stocks are always going to be a higher volatility play, so you have to be willing to deal with both the ups and the downs," Mark Tepper, president and founder of Strategic Wealth Partners, told CNBC's "Trading Nation" on Thursday. "There's a lot of value in emerging markets stocks right now."

Exposure to emerging markets is a sure bet on the consumer, Tepper added.

"The emerging market consumer is still one of the most powerful forces in investing," he said. "The growth of the middle class in China and India, it just represents a ton of potential."

Geopolitical issues, such as talk of a trade war between the U.S. and China, will keep emerging sector stocks under pressure in the short term, added Tepper. The MSCI emerging markets ETF is on track for a 2 percent decline in 2018, its first year in the red since 2015. The ETF is setting up for its third month of losses this year.

Tepper says the best way to make a play on emerging markets, while avoiding geopolitical pressure, is through the DGS emerging markets small cap dividend fund.

It's a "great dividend play, it gives you some lower beta and at the same point in time these small-cap stocks are doing business locally, not internationally, so they wouldn't be impacted by any trade issues whatsoever," he said.

The DGS ETF is down 0.7 percent for the year, more than half the decline on the MSCI emerging markets ETF.

Larry McDonald, editor of the Bear Traps Report, has a different take on the bull case for emerging markets.

"With bond yields moving higher, there are a lot of losses around the country, around the world in bonds. Those assets have to move somewhere and they're moving into commodities, commodity-producing countries," McDonald said on Thursday's "Trading Nation." "About 30 percent of Brazil's GDP is related to the commodity space, so from an economic standpoint, that's a very big positive."

The MSCI Brazil ETF EWZ is down 5 percent in 2018 and is down 20 percent from its 52-week high set on Jan. 25. The EWZ ETF was on pace for its worst week in a year.