I know, this sounds a very big call, but it’s just a possibility that August 7th could have put an end to the emerging equities underperformance.

This is not to say we are bullish on EMs yet because we think that emerging economies are still facing economic issues like inflation, slow growth and currency devaluations which could well extend into 2014, but we are only saying that the outperformance of the US and Japan in relation to the emerging markets may have come to an end. It’s just a possibility.

Mr. Michael Gayed is credited for making this call sometime ago. Look at the charts below and you’ll see that there was an uptick in relative strength. The spread between the US and Emerging stocks is about the same as it was in 2008, before EMs started a big rally.

Stocks can still fall though. What we are saying is that, from now on, there’s a big possibility that the US and Emerging equities may become more correlated and start going up or down in tandem, ending the first semester’s huge US outperformance (which started in late 2010).

Just saying…

Share →