Some technical analysts keep an eye on the relative performance of exchange traded funds tracking emerging markets to get a sense of risk appetite in the markets.
Investors piled into emerging markets ETFs in October such as Vanguard Emerging Markets (NYSEArca: VWO). [Emerging Market, High-Yield Bond ETFs Lead October Inflows]
Emerging market funds have outperformed the S&P 500 since the bounce from the early October low. The iShares MSCI Emerging Markets (NYSEArca: EEM) was up 20.7% for the month ended Nov. 3, compared with a 14.8% gain for SPDR S&P 500 (NYSEArca: SPY).
However, emerging markets are trailing U.S. blue-chip stocks by a wide margin this year. The S&P 500 is up 1.8% year to date, while the emerging market ETF is down 12.1%, according to Morningstar.
“The iShares MSCI Emerging Markets has been underperforming the U.S. market since October last year. In September of this year a monster head-and-shoulders relative top was activated and that has yet to fulfill its bearish potential,” said Tarquin Coe, technical analyst at Investors Intelligence.
The emerging market is off about 9% over the past three months.
“The emerging markets led on the way up and they lead on the way down. When they bottom it is likely to be ahead of the developed world, as it was in October 2008. As yet they have not established a concrete floor (the recent early October relative low was not a firm place to hang one’s hat),” Coe wrote in a newsletter Friday.
“Recent trading has seen the emerging market’s relative chart correct from oversold but with the 50-day exponential moving average now tested, the trend is primed to reassert its slide. Such action would have bearish implications for global equities,” the analyst said.
iShares MSCI Emerging Markets
