This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Global Macro: Emerging Markets Are Taking a Beating

NEW YORK ( TheStreet) -- The Bank of Japan's decision to not do anything further with monetary policy left markets unsettled on Tuesday, and the general fear of what central banks will or will not do next has emerging market investors on their toes.

The pair below is of JP Morgan Emerging Markets Bond Fund (EMB) over Barclays 7-10 Year Treasury Bond Fund (IEF), which measures the relative demand for emerging market fixed income. Over the past six months the price action has oscillated within a sideways pattern, indicating indecision over future direction.

Central bank easing taking place across the world has pushed funds into emerging markets, which outperform when the U.S. dollar is weak. Starting in 2013 the U.S. dollar rallied, which had adverse affects on the pair below.

Another factor driving the chart lower is the emergence of volatility across world markets. As investor fear rises, it leads to a flow out of riskier assets such as emerging market debt and equities.

The pattern below reflects the uncertainty and overall rotation into a more cautious investment style. The wave of volatility over the past year has led to the emergence of a head and shoulders pattern within this intermarket relationship. By breaking the lower trend line, this chart has signaled that riskier assets, at least for the time being, are too much exposure to uncertainty for many investors.

The next chart is of MSCI Emerging Markets Index Fund (EEM) over Total World Stock Index ETF (VT). This chart measures the relative performance of emerging market equities compared to the broader world equity market.

In an article Tuesday, I discussed how Chinese weakness has drastically affected financial markets this year. The chart below is another testament to this. Emerging market equities have underperformed throughout 2013.

Chinese economic data have continued to miss time and time again, which has negatively affected inflation expectations. Lower inflation has led to weaker exports, as well as weakness in the commodity sector.

Exports and commodities are major revenue drivers for emerging economies, and broad economic weakness from their major importers, Europe and the U.S., has kept this pair falling.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $92.95 -0.72%
FB $117.56 -0.42%
GOOG $701.33 0.81%
TSLA $212.94 -4.30%
YHOO $36.97 2.70%


Chart of I:DJI
DOW 17,621.75 -29.51 -0.17%
S&P 500 2,050.03 -1.09 -0.05%
NASDAQ 4,722.6720 -2.9670 -0.06%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs