Most major emerging markets have been on the defensive in recent weeks, but as sentiment turns against China, some overlooked countries are coming back into focus; whether by choice or necessity remains to be seen.
We regularly monitor the nations of China, Brazil, South Korea, Taiwan, South Africa, Russia, India, Mexico, Malaysia and Indonesia to see where momentum is picking up and where it lags.
This is done by showing the trend in the country’s price ratio relative to the broader Emerging Markets ETF. A rising price ratio means the numerator/country is outperforming (up more/down less) the denominator/VWO. The Emerging Leaders Report is exclusive to Emerging Money.
Taiwan (EWT, quote) continues to perform well, particularly in the face of a weakening China. Unlike most emerging markets, Taipei spent April trading sideways compared to the global asset class and is now pushing well ahead of its counterparts on a relative basis. As usual with this market, the technology sector is crucial. If tech shares are weakening, so will EWT.
Malaysia (EWM, quote) had a significant spurt of strength last week as Australia’s new free trade agreement is benefiting export partners throughout Southeast Asia. This chart has been holding up much better than the broad VWO all month, and in the absence of solid leadership elsewhere the trend of outperformance could continue. Since Malaysia is a difficult trade for many U.S. investors, EWM is probably the best way to play this.
Indonesia (IDX, quote) kept its bullish trend intact for another week. In this case, size is everything. Global money in the short term remains hesitant over BRICs, but as one of the largest non-BRIC markets Jakarta provides both relative comfort and the prospect of additional upside on the horizon.
And finally, India (INP, quote) is now worth paying attention to on this week’s bounce back. Whether this trade continues into the weeks ahead remains to be seen, but the fact that this chart demonstrates a strong bounce off ratio support is now underway. Remember, these charts can be read like more traditional price action graphs. They have a technical dimension that traders can analyze.
Brazil (EWZ, quote) remains in the grip of a “ratio crash” as it severely underperforms other emerging markets and the real continues its descent. Weakness likely will not turn around for at least a few more weeks and may be a signal that further monetary easing is likely.
by Michael A. Gayed CFA for Emerging Money.
The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The commentary does not constitute individualized advice. The opinions herein are not personalized recommendations to buy, sell or hold securities.