Emerging Markets

Yesterday we outlined our Europe Trade.  Let’s switch to Emerging Markets where we always have higher growth but we have also had a higher miss ratio on EPS and performance over the last five years. 

The markets have behaved accordingly and add in a Fed that has been stalking now for four years and you can see why the EM underperformance that made sense when global growth was weaker became an epidemic.  This narrative is shifting.

Emerging Markets have done even better than Europe versus the SPX, and we often remind investors of the relative underperformance of the last 6.5 years in EM to SPY.

The first chart shows EM vs DM over last 6.5 years where through to the December 22nd bottom (Double bottom off the Jan 22, 2016 bottom), EM underperformed the SPY by 61.8% from the high on October 2010.

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Now you can see where EM equities have begun to reassert themselves after a post-election rout, continuing what began at the bottom of markets in 2016.  From the December 22 low, EM equities have been the best equity asset allocation in the world.  This trade will continue.

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