While nearly all global equities have rallied in the last few weeks, emerging markets have shined even brighter. The chart below shows the relative strength of the the MSCI Emerging Market ETF (EEM) compared to the S&P 500 ETF (SPY). In the chart, a rising line indicates emerging markets are outperforming while a falling line indicates under-performance.
Given the concerns over sovereign debt this year, coupled with the fact that emerging markets have little in the way of it, makes the fact that this sector has outperformed seem obvious. However, this hasn't always been the case. As shown in the chart below, emerging markets underperformed the S&P 500 during the first half of 2010, even as the debt worries were at their highest. In late May, we noted this anomaly, and suggested in a report that emerging market stocks were the baby being thrown out with the bathwater (Barron's picked up the report the following weekend). Since then, it appears as though cooler heads have prevailed as emerging markets have outperformed handily. Since the end of May, SPY has risen by a respectable 3.23%. Over that same period, though, EEM is up nearly 14%.
Copyright (c) 2010 Bespoke Investment Group
