Emerging markets have outperformed developed markets since mid-March, a change in character after several years of severe underperformance. The headlines in emerging markets have improved in certain areas (India and China most notably), while headline risk has remained most notable in Russia and the Middle East.
EEM is now at a 2 year high, which is a crucial technical level for the ETF on a 5 year chart:
Looking at EEM’s 5 year chart, it’s pretty amazing to consider that emerging market stocks are only flat over the past 3 years, while the S&P 500 has risen 50% in the same period.
I discussed the relative fundamental valuations of emerging market stocks vs. U.S. stocks in aMacro Wrap post in August 2013:
The valuation differential is starting to favor emerging markets. The bad news there seems to be more than priced in on a relative basis. However, psychology is the driver in the short-term. The U.S. overweight has worked for investors this year, so they’re content to stick with it for now.
The S&P 500 continued to outperform EEM until mid-March, and the relative valuation differential became even more extreme (more than I initially expected). Compared to Aug 2013, the SPX has still outperformed EEM by nearly 5%, so the relative valuation argument looks even more attractive today.
I still expect emerging market stocks to outperform U.S. stocks over the course of the next 5 years. In the short-term, however, EEM might run into some resistance here near $45 given the technical importance of that level.
This post originally appeared on RiskReversal.com
Recommended for You
Why did Hillary Clinton reward Debbie Wasserman Schultz after WikiLeaks published emails that exposed how the supposedly neutral DNC Chair helped undermine Bernie Sanders and abused her office? Clinton elevated the disgraced operative to Honorary Co-Chair of her campaign, further enraging Bernie’s…The Fiscal Times
SPARKS, Nev. (AP) — It's Tesla Motors' biggest bet yet: a massive, $5 billion factory in the Nevada desert that could nearly double the world's production of lithium-ion batteries.Associated Press
If you've ever wondered if you could take advantage of a cash-back or rewards credit card to make your monthly mortgage payment, here's your answer.Credit.com
Jim Cramer cracked the case on how Apple managed to pull off a better-than-expected quarter, leaving investors salivating for more.CNBC
SEATTLE (AP) — As crude oil trains began rolling through its downtown a few years ago, Spokane was among the first cities to pass a resolution calling for stronger federal safety regulations.Associated Press
Read about the differences between money market accounts and savings accounts, and see why a depositor would elect a money market over a savings account.Investopedia
In short, usually bullish strategist Tom Lee advises that investors should “sell the beach, buy the teach.”CNBC
Retirees may find living on a cruise ship makes financial sense when compared to other options.CNBC Videos
Apple wants to be more than just a company that makes iPhones and is growing revenue from services, up 19 percent in its fiscal third quarter.CNBC
Before you can reach your lump sum goal, estimate the income required to support the retirement you want.Kiplinger.com
- Advance AmericaSponsored
We keep the tough going with 2,300 convenient locations, 6,500 helpful employees & a 97% customer satisfaction rating. Talk about strength in numbers.
The failed coup in Turkey on July 15-16 has done exactly what many experts predicted: It’s given Turkey’s President Recep Tayyip Erdogan a green light to implement the next stage of his plan to turn the country into an Islamic state. Turkey has been a particularly important NATO ally of the United…The Fiscal Times
The The Woodlands, Texas-based company said it had net income of 36 cents per share. Earnings, adjusted for restructuring costs and non-recurring costs, were 53 cents per share. The results beat Wall Street ...Associated Press
Gold held steady early on Thursday, clinging to gains from the previous session when it rose 1.5 percent to a 2-week high on a weaker dollar after the U.S. Federal Reserve left interest rates unchanged. * Spot gold was little changed at $1,338.87 an ounce at 0112 GMT. * U.S. gold rose 0.9 percent…Reuters
July 27 -- Mark Halperin and John Heilemnann discuss a battle of potential first daughters on “With All Due Respect.”Bloomberg Video
Stocks ended Wednesday's trading slightly lower as shares of energy companies and consumer goods makers outweighed gains in technology companies like Apple. On Wednesday: The Dow Jones industrial average ...Associated Press
Top tech workers in San Francisco can add another perk to the free meals and massages: zero-down...Business Insider
Oil prices tumbled as much 3 percent on Wednesday, with U.S. crude futures hitting three-month lows, as U.S. crude and gasoline stocks surged despite the peak summer driving season as weak demand and profits forced refinery cutbacks. The U.S. Energy Information Administration (EIA) said crude…Reuters
GoPro's revenue fell to $220.8 million in the second quarter ended June 30 from $419.9 million a year earlier. Analysts on average were expecting revenue of $194.3 million, according to Thomson Reuters I/B/E/S.Reuters