EM vs DM

EM vs DM: A Major Market Turning Point

This is the third of a 10-part blog series where I will go through each of the charts from the 10 Charts to Watch in 2019. The purpose is to add some extra comments and context around the charts, as well as to explain some of the finer details of the indicators.

Q3 hedge fund letters, conference, scoops etc

This time we look again at EM vs DM: specifically the relative performance of emerging market equities (MSCI Emerging Markets Index) and developed market equities (MSCI World Index). Basically a familiar pattern is appearing, which leads me to believe (based on several other key charts and indicators) that we are at a major market turning point with these two.

EM vs DM

Among the factors driving a potential multi-year EM vs DM relative performance turning point are: valuations (across a range of valuation metrics emerging market equities look cheap in absolute and relative terms), sentiment (in the short term we’ve seen contrarian bullish signals in our indicators), technicals (the above chart on a longer term basis, and improving market breadth shorter-term), and economics (short-term starting to see some stabilization in EM macro, and longer term the rise of EM is an important if forgotten theme which supports this rotation).

There are certainly risks to this view, for example if the US dollar undergoes another round of strength that will put a spanner in the works short-term. China is another key one – i.e. basically if they do a policy mistake and the economy/financial markets spiral out of their control. A global recession (not my base case) would also cause issues for EM equity absolute returns.

The reality is there rarely is, if ever, a situation where a compelling investment case is without risk, and indeed the other big risk is simply that I could be too early with this call. But following my process and ever-growing indicator set, I can at least say based on the current evidence that the weight of probabilities here is clear, and to a certain extent the chart speaks for itself.

So for investors considering their EM allocations, be sure to consider this chart!

For more and deeper insights on global economics and asset allocation, and plenty of good charts you may want to subscribe to our institutional research service.

Click through for free look or a trial…

Article by Callum Thomas, Top Down Charts

Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Are you an intelligent investor?

ValueWalkPremium is a website and newsletter for smart investors like yourself. We focus on the latest hedge fund industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers