Chart 1: Could emerging market equities break out in coming quarters?
Emerging Market equities have under-performed Developed Market equities for years now. Slowing economic activity, falling export growth, over-leverage, inflationary pressures and geopolitical tensions have plagued various regions and countries within the index. Since early 2010, the MSCI Emerging Markets Index has basically gone sideways while US equities have risen to record highs and become extremely expensive on a historical basis.
Chart 2: Emerging Asia equities have already broken out to the upside
The question now is, could global fund managers and asset allocators shift capital from expensive DM equities towards laggards? GEM equities have now approached a major resistance zone, after making no progress since at least 2007. It seems that a breakout could be at hand in coming quarters, especially since Asia is already leading the way higher.
Disclosure: Those that follow my posts should already know that I have started buying some GEM equities, such as Russia in March and Chinese equities just recently. Due to the overly stretched US equity market, I am not yet buying in full force. However Asian GEM equities are extremely depressed relative to the US and other DM markets.