Our spread analysis of Emerging Market equities vs Developed Market equities failed to breach the .2300 level as we proposed last week after an 11% outperformance move over the preceding 4 weeks.
Our view remains this spread is to be bought but that no real rally is a straight line. Emerging Markets (EEM, quote) have pulled back 3% in last 3 days overall, but Emerging Markets have underperformed Developed Markets by 3% on last two sessions.
We remain committed to trading the spread at key levels. We would be buyers of the spread back at .2200 where we would have seen a 5% correction on the spread. The combination of escalating Russia (RSX, quote) /Ukraine events, disappointing Chinese data (FXI, quote) and technically overbought conditions lays the groundwork for this pullback.
Emerging Market fund flows are due out in 2 days and we expect Emerging Markets will continue positive run but with a smaller sized inflow read.