From the desk of Willie Delwiche.
Key Takeaways:
- Emerging Market indexes weighed down by weakness at top.
- Europe & Middle East showing leadership.
- If China is finding a bottom, broad EM strength could support a sustained rally.
Here in the US, a handful of mega-cap stocks are pushing the indexes to new highs, while beneath the surface many stocks are languishing. The NASDAQ Composite began this week by making a new all-time high, but it was the first time in eight days that there were actually more stocks making new highs than were making new lows. The S&P 500 is trading in record territory, while nearly 40% of its stocks aren’t even above their 50-day averages.
When we look overseas, what’s happening in Emerging Markets is the inverse of what we’re seeing within the US indexes. For EM, the weakness is at the top, in the countries that make up the largest weightings within the EM indexes. China accounts for more than a fifth of the weighting in EM indexes and is down nearly 15% over the past six weeks. India is the only country among the top six in the index that’s up over the past six weeks. Overall, EM has fallen 7% in that time period, moving into negative territory for the year and making new lows versus the rest of the world.
Most markets are holding up better than EM indexes would suggest. The median Emerging Market is down less than 1% over the past six weeks. During that same period, the median Developed Market is basically flat. For as weak as the Emerging Markets in the Asia-Pacific region have been, those in Europe and the Middle East have been even stronger. Seven of the top 11 markets (across EM and DM) over the past six weeks have been Emerging Markets in the EMEA region, which overall have a median return of 4.7%, the best within our regional breakdown across EM and DM. Our ACWI relative strength rankings help identify leadership trends by country. While we’re discussing negative divergences from a breadth perspective at home, we’re seeing positive breadth divergences in Emerging Markets. China has found a bid to begin the week. Strong EM breadth could provide it with a strong foundation on which to build a sustained rally.
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