This Great Graphic, created on Bloomberg, shows the performance of the MSCI World Index (white line), which, despite its name, does not include emerging markets. It also shows the MSCI Emerging Market Index (yellow line).
In Q1, emerging market equities underperformed. They caught up in late Q1 and into Q2. The emerging index outperformed the developed stock index for most of Q3, but had a horrific month of September. It was so bad that the emerging market stock index swung from outperforming to under performing over the course of the month.
What investors are most interested in is not returns per se, but risk adjusted returns. Emerging market stocks tend to be a higher risk than developed country equities. Emerging market equities tend to do what the developed equity markets do, but more so. The MSCI World Index is approaching the August low. The 50% retracement objective is still another 1% away. If it is a double top in place, the developed equity market index may go back to the February lows.
The MSCI Emerging Market equity index has returned to the lows seen in May. It is approaching a key retracement of this year's rally, which is also about 1% below current levels. A break of it would warn of a return to the February-March lows.
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