Thanks for highlighting. There is 1 interesting and crucial aspect of this EM rally compared to previous episodes: it‘s a very narrow rally with low market breadth. 5 Asian technology & internet stocks in the MSCI EM Index account for 85% of the year-to-date returns (TSMC, Hon Hai, Tencent, SK Hynix and Meituan), fuelled by the AI optimism. Very similar to what we see in the S&P 500 and the Mag-7, but to a much stronger magnitude (Mag-7 account for ca 50% of ytd-gains). I‘m a bit critical whether this narrow EM rally can continue since the leading stocks in the MSCI EM didn‘t contribute to upside EPS revisions for the index (annual EPS estimates for 2024 & 2025 remain flattish since mid-April), whereas the Mag-7 continues to boost EPS growth for the index (annual EPS estimates for 2025 & 2024 revised upwards by ca 3-5% since mid-April). On the other side, I see 2 Fed rate cuts priced in with a 60% probability until year-end, leading to a potential weaker USD, which could become the key tailwind for EM stocks. Interesting times in the EM asset class!
But also, the index in the main chart is one I constructed -- it is using US$ price returns of country indexes (i.e. equal-weighted across countries). There is not a direct replication of this in ETF land that I know of, but I would also note the bonus chart refers to the point that this is a broadly bullish EM theme...
Thanks for highlighting. There is 1 interesting and crucial aspect of this EM rally compared to previous episodes: it‘s a very narrow rally with low market breadth. 5 Asian technology & internet stocks in the MSCI EM Index account for 85% of the year-to-date returns (TSMC, Hon Hai, Tencent, SK Hynix and Meituan), fuelled by the AI optimism. Very similar to what we see in the S&P 500 and the Mag-7, but to a much stronger magnitude (Mag-7 account for ca 50% of ytd-gains). I‘m a bit critical whether this narrow EM rally can continue since the leading stocks in the MSCI EM didn‘t contribute to upside EPS revisions for the index (annual EPS estimates for 2024 & 2025 remain flattish since mid-April), whereas the Mag-7 continues to boost EPS growth for the index (annual EPS estimates for 2025 & 2024 revised upwards by ca 3-5% since mid-April). On the other side, I see 2 Fed rate cuts priced in with a 60% probability until year-end, leading to a potential weaker USD, which could become the key tailwind for EM stocks. Interesting times in the EM asset class!
Thanks for the perspectives. Interestingly enough, my local-currency index breadth indicator has shown improving breadth...
I had a question by email as to what ETF symbol this refers to.
Firstly, I will note that I don't do securities/product research or recommendations -- the best I can do is direct you to an ETF database e.g. https://etfdb.com/etfdb-category/emerging-markets-equities/
But also, the index in the main chart is one I constructed -- it is using US$ price returns of country indexes (i.e. equal-weighted across countries). There is not a direct replication of this in ETF land that I know of, but I would also note the bonus chart refers to the point that this is a broadly bullish EM theme...