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Divergence between Developed and Emerging markets equities approaching extremes - BBH

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 11, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Córdoba) - Analyst from Brown Brothers Harriman explained that there is another divergence, beyond monetary policy taking place and is between Emerging markets equities and the performance of equities in developed countries.

    Key Quotes:

    “The MSCI Emerging equity market index is widely under-performing MSCI's World Index, which tracks developed countries' equities”.

    “The subsequent stability and recovery in the Shanghai Composite, now more than 25% off its August lows, and the Fed's decision not to hike in September, helped lift the MSCI Emerging market equity index. Alas, the strong US jobs data and the backing up of US rates is once again weighing on emerging equities."

    “The under performance of the emerging market equities is approaching the extreme seen in mid-August. However, the 60-day rolling correlation, conducted on the basis of the percentage change in both MSCI indices has been fairly stable since mid-August a little above 0.7."

    “In the current context, we suspect the extreme divergence may be eased by the developed equities selling off rather than a significant recovery in emerging market equities.
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