Emerging Markets

Long time readers know that I've been saying that emerging markets looked statistically cheap.  You can see me specifically talking about this in the summer-fall seasons of 2013 here, here and here.  We've mentioned these in passing a few other times but these were our main posts on the subject.  

For most of the last three years emerging markets have seriously underperformed the US.  I might also add that statement about under performance versus the US also holds true when looking at two of the three dates from the posts I listed above.  That's proof enough in my book that anybody who reads me  looking for market timing signals will be disappointed.  For the most part we are not short term oriented in client accounts or in most of our strategies.  Even where we are, we'll not be discussing it here!   

Having said all of this, the performance discrepancies between the US and emerging market started to change last fall.  Year to date emerging markets as measured by Vanguard's emerging market ETF {VWO} have slightly outperformed the US.  Stock indices have done pretty well around the world this year so the fact that the two have more or less performed in lockstep might not be worth noting, except look at these longer term charts {charts are from FINVIZ.com}.  The first is a monthly chart of the S&P 500 ETF {SPY} going back to 2006.  It's been off to the races since 2009 for the US.

This next chart over the same period is the previously mentioned VWO

Emerging markets are roughly flat versus their highs in 2007 and have in essence gone nowhere since 2010.  On a money flow basis this has started to change in 2014 and these indices are on the cusps of breakouts.  I'm not the only one to have noticed this.  Here's a couple of links to others that have seen what has the potential to be a break out move at some point.  See here and here.

Right now these are overbought like most everything else and we changed our shortest term indicator on these along with the US and other foreign markets to NET MARKET NEUTRAL back on August 5, 2014.  Note thought we've left our longer term readings on these as well as the US at NET MARKET POSITIVE.  

There seems to be a lot going right in this neck of the market woods right now and this sector should be on investor's radar, particularly if we get some sort of pull back this fall.  There is always the potential for a correction in these stocks and I'd not these are often more volatile than the US or European contemporaries.  Yet, absent an unlooked for change on the economic or political front, probability suggests the stage is set here for out performance over a longer period of time.  

*Long ETFs related to the S&P 500 in Client and personal accounts.  Long VWO in client and personal accounts.  Please note these positions can change at any time.

**Please also note that we point out in this post certain discrepancies in the markets.  Nothing here should be considered a recommendation to buy or sell any security or asset class.  You should discuss  with your own financial advisor, do your own homework or hire us before you invest in anything we talk about here on this blog.