Emerging/Submerging Markets And Non-U.S.: Signs Of Life?

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Includes: ADRE, BIBL, BXUB, BXUC, CHGX, CRF, DBEM, DDM, DIA, DMRL, DOG, DUSA, DXD, EDBI, EDC, EDOW, EDZ, EEH, EEM, EEME, EET, EEV, EMEM, EMF, EMLB, EMSA, EPS, EQL, EQWS, ESGE, ESGL, EUM, EWEM, FEM, FEX, FLQE, FWDD, GSEW, HEEM, HUSV, IEMG, IVV, IWL, IWM, JHML, JKD, KEMP, KLEM, MFEM, MSF, OMFS, OTPIX, PMOM, PPEM, PPLC, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RFEM, ROAM, RSP, RVRS, RWM, RYARX, RYRSX, SCAP, SCHE, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPEM, SPLX, SPSM, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, USA, USMC, USSD, USWD, UWM, VFINX, VOO, VTWO, VV, VWO, XSOE, ZF
by: Brian Gilmartin, CFA

Bespoke - in their weekly Research Report - published every Friday night, had a great graph on what could be a potential bottoming in emerging markets the last few weeks.

This blog has written previously about emerging markets and non-US (here and here, and here). Brazil (NYSEARCA:EWZ) was never repurchased for clients, but the EEM and VWO have been added to in small increments during the 3rd quarter, while a new mutual fund was added to client accounts, i.e., David Herro's Oakmark International Fund. David has an impressive long-term track record, even though the fund is down 15%-16% YTD as of Friday, 10/19/18. Both the VWO and EEM were/are also down 15% YTD as of last Friday. There has been a further flush in EM and non-US just since September 30th, when all three vehicles were down only down 7-8% for the first 9 months of the year.

What's the proper weight in client accounts for EM and non-US? No doubt that varies depending on who you ask, but Emerging Market economies are about 15% of global GDP, with China being the largest share of that chunk. Chinese shares or China ETFs will never be bought for clients directly.

The 10-year bear market in the emerging market asset class ended in Q1 '16. The three-year rolling return for the EEM is 5.5% and the 5-year rolling return for the EEM is just 29 bps.

If the dollar just remains stable and the US-China tariff spat could get resolved, I suspect it would break the EM and non-US open quickly, at a time when everyone is worried about the US market.

Here is the first-ever EM purchase for clients in March 2016.

It's (EM trading action, that is) really all about China. China rose 4% last night.

The above mentioned positions will continue to be added for clients in small positions over the 4th quarter.