Emerging Market stocks have their place in a lot of portfolios, but for the last decade they’ve been underperforming especially relative to US stocks.
As we head into a new quarter, we thought it’d be worthwhile to highlight two charts worth monitoring to track these stocks’ progress.
First, let’s start with Emerging Markets relative to the S&P 500 using US-listed ETFs $EEM and $SPY. Earlier this year prices tested their post-IPO lows as momentum diverged positively and they’ve been stabilizing since.
Click on chart to enlarge view.
While its upward progress is slow, not going down consistently is certainly an improvement worth noting after ten years of weakness.
And relative to Developed Markets Ex-US and Canadian stocks, prices are testing the upper end of a nearly 7-year base.
Whether prices will break out to new heights successfully remains to be seen, but the tight consolidation in this ratio over the last 6 months suggests it’ll likely be an explosive resolution when we do get one. And how it resolves will likely correspond with the successful (or unsuccessful) retest in the broader “reflation thesis” that’s impacting most cyclical assets.
A lot of eyes are on EM stocks relative to US stocks, but for now, we think the focus should be on the second chart. If it breaks out, then EM stocks are likely off to the races…but if it breaks down then more frustration and pain are likely ahead for those seeking broad-based EM exposure.
Keep it on your radar for the weeks and months ahead and we think you’ll be happy you did.
Thanks for reading and please let us know if you have any questions!