Emerging Markets Continue Their Upward Momentum

The upward momentum of Emerging Markets is showing absolutely no signs of deteriorating. We look to emerging markets as a major indicator for global equities; we take particular interest in emerging market small caps (only a few points away now from multi-week highs).

To us, the below charts are simply documenting this exceptionally strong and broad trend of capital flows.

First, let's look at EEM, which is now less than 2% away from a multi-week high against the SPY, continuing to outperform the S&P 500.

Moving onto Emerging Market bonds we see parallel upward momentum, from both an absolute and relative (US investment grade bonds) perspectives.

If you're not familiar with the ETF CEW may we suggest you make its acquaintance (emerging market currencies in USD terms). 1% away from another multi-week high.

Next lets us look at the South African Rand and Brazilian Real.

One thing that does confuse us is why the South Africa and Brazil are considered Emerging Markets. We think it does them an injustice. Maybe someone can enlighten us here.

Emerging Market equity, bond, and currency markets are all trending powerfully in the same direction. Is anyone trading against this trend?

At the risk of sounding like Dennis Gartner, we say that capital appears to be flowing towards where it is respected.

Disclosure: Long EEM, PCY, CEW.

Comments

[Assouli:]

i never really thought about EM bonds as an investment option... can one expect these to preform similarly to US bonds, in that they are the least battered option in a recessionary scenario but suffer versus equities during inflationary boom periods?

Oct 06 10:41 PM