On a day when Mario Draghi has reinforced why investors must be careful when everyone moves to one side of the boat, its worth bring up a chart of EM equities long term, using long term moving indicators. 

Today Mario Draghi reinforced the concept that the Euro can move even higher relative to the USD as the ECB considers pulling back on bond buying.  The impact today for the USD/EUR cross is dramaitc despite the writing on the wall.  The DXY index which is mostly a Euro and Yen basket, is again under attack and about to break critical techincal levels to the downside.  For EM equities it may be another leg higher, in what has been a strong road back to global asset allocation relevance.

Todays chart attempts to point out that despite all the pain in EM over the last 5 yrs or so, EM neve broke the uptrend from the crisis.  If you think about volatility weighed in the context if the unprecendented financial expereiements we went through post crisis, EM was supposed to get whipped around. Add in liquidity dynamics that are always a part of trading EM, its not hard to see how EM was so bruised, despite the fundamentals not being warranted.

The chart below shows how the MXEF (MSCI EM) Index never broke the monthly long term average.  The two major tests in late 2008 (EM bottoms first), and in Jan 2016 both held and EM equities have actually been in this uptrend all the way back to the post Asia/Russia crisis bottom from early 1999.

The long term EM investment rationale has never been broken and its possible to say  that the technicals have also held across a long term cycle.

 

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