Emerging Markets
Jury Is Still Out On EM
Emerging Market stocks have been swept up in the last month’s rally in all things cyclical and high beta. Nonetheless, the MSCI Emerging Markets Index is still down marginally from its level coinciding with its April 30th VLT BUY signal.
Odds & Ends
Here are some brief follow-up notes on topics covered in recent months’ Green Books.
Adding EM On A Rent-To-Own Basis
The Major Trend Index has remained in neutral territory during the last several weeks of upside action, suggesting there remain significant fundamental and technical shortcomings beneath it all. But this precarious MTI stance didn’t preclude us from acting on a new bullish reading for Emerging Market equities at the end of April.
Adding Some Emerging Markets On A “Rent-to-Own” Basis
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Emerging Market equities have been modest underperformers during the current rally, but they’ve marshaled enough strength to trigger a new low-risk BUY signal on our VLT Momentum algorithm at the end of April.
The Emerging Markets Dilemma
We’ve been either light on Emerging Market stocks or out of them altogether since early 2011, but have lately been watching for an opportune time to re-enter.
Emerging Markets: Not Persevering, Just “Preserving”
We’ll never know how world events might have evolved had Mitt Romney won the presidential election in 2012. But thanks to the wonderment of Emerging Markets’ underperformance, we can go right back to the last days preceding that fateful election.
Narrow Performance Divergence Among EM May Not Last
We’ve previously noted the narrowing performance divergence between top- and bottom-performing Emerging Market (EM) countries in recent years.
Emerging Markets: Down A Lot, But Not Really Cheap
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The stock market liquidity squeeze we’ve discussed this year hasn’t played out quite like we expected. Traditionally, Fed tightening and slowing money growth hit Small Caps earlier, and harder, than the blue chip stocks...
EM Country Rotation Based On A Stock Factor Model
Back testing shows stock-level factor alpha can be captured at the country level. With the rapid growth of single-country ETFs, this may prove an efficient, practical alternative to individual stock selection.
Economic Performance: Powerful Factor For Country Rotation
In previous studies, we looked at two classic factors for employing a country rotation strategy: valuation and momentum.
Sector Rotation: Momentum Versus Valuation Factor
For sector overweight/underweight decisions, applying a Momentum overweight with both EM and DM countries has been most successful.
Valuation-Based Country Selection/Rotation
Despite cyclicality, over the longer term, investing in lower valuation countries ekes out better performance in an EM portfolio, and Dividend Yield showed the most consistency in terms of value factor effectiveness.
Momentum-Based Country Rotation: EM Vs. DM
Last month we assessed the effectiveness of using valuation factors as a basis for country allocation. Using 20 years of data, our results showed that they work quite well specifically for Emerging Market (EM) country-rotation, however, the same valuation-based strategy does not appear to be value-added for Developed Market (DM) allocation/rotation.
Valuation-Based Country Rotation: EM Vs. DM
Many studies have evaluated momentum factors for over/underweighting country exposures within a portfolio, but few have considered valuation factors for country rotation within the Emerging Market space.
Emerging Markets: Fundamental Diffusion Indicators
Within EM, more robust growth is being exhibited by: 1) firms in Emerging Europe; 2) companies in Energy, Materials, and Financials; and, 3) larger cap companies.
Emerging Markets: Momentum-Based Sector Rotation
Momentum factors are effective in differentiating EM sector performance, with High Momentum significantly outperforming Low Momentum. Unfortunately, there is a lack of investable EM sector vehicles.
EM: The Case For Waiting...
We’ve mentioned that concerns over potential seasonal weakness in September and October seem pronounced this year, perhaps because the year has so far turned out a pleasant surprise following its horrendous start.
EM Leadership: Just The Beginning?
Our EM Allocation Model triggered a BUY at the end of August after 5 1/2-years in bear mode. This upgrade is consistent with a cyclical leadership run of one to four years relative to Developed Markets.
From Turkey To Thailand, EM Political Risks Hard To Dodge
A military coup was staged in Turkey on Friday, July 15th, but it was quickly suppressed. The damage, however, was done.
EM: Improved Sentiment But Macro Risks Still Dominate
Positive forces may be transient. Be wary of EM’s high correlation to commodities and Chinese stocks.
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