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By Tim Seymour

Periodically at Emerging Money we examine spread relationships. EEM/SPY is the big picture one, but intramarket-making country spread calls are often highly effective for reasons that are both rooted in fundamentals and also technical and market timing factors.

On the fundamental side, clearly there can be drivers like lower inflation, central banks cutting rates, higher commodity prices boosting domestic budget, politics, etc. All of these factors might make one country more interesting relative to a related country where these macro factors are weakening/less bullish.

On the trading side, sometimes you have conditions where one country just gets overextended on the charts and there is an opportunity to sell, often in favor of a correlated underperformance. We looked at fund flows, we looked at technical factors on charts for key resistance, old market tops, and exhaustion points where market timers say there is a great opportunity to sell strength.

Today we bring you Turkey vs. Russia.

If you look at the iShares MSCI Turkey Index Fund (NYSEARCA:TUR) vs. the Market Vectors Russia Index (NYSEARCA:RSX) two primary core local indices, you can see massive outperformance. TUR/RSX is higher by 30% since September, but this appears to be getting exhausted. Fundamentals and technicals can support this call. Turkey and Russia have often been seen as a relative value trading pair because they are the two most liquid markets in Eastern Europe.

The pair also works well as one side does well in commodities.

Source: Turkey Vs. Russia - An ETF Smackdown