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 Start to Break Out

NEW YORK ( TheStreet) -- As U.S. equities form a topping pattern, emerging-market equities and foreign assets are breaking to the upside, with room to run.

The bounce-back in commodities, weakening U.S. dollar and flattening yield curve have all contributed to the recent breakout in foreign assets.

The first chart below is of iShares China Large-Cap (FXI). China was a major catalyst for the first selloff in emerging assets that led us to the depressed levels we bottomed out at. Weak Chinese economic data and fear of an unsupportive central bank pushed money out of developing countries and commodities.

In recent weeks, as commodities have rebounded and positive sentiment has returned, the battered assets have caught a bid off of their bottoms.

Chinese manufacturing data released Tuesday night, however, underperformed expectations, which will be telling of the future price movements of emerging-market assets. If the markets can shrug off the miss and close higher, they are likely to continue within the strong uptrend.

The next chart is of CurrencyShares Australian Dollar Trust (FXA). The Aussie dollar is heavily tied to the Chinese economy and commodities. It has bottomed alongside Chinese equities and looks to be breaking out higher.

Australian inflation data were released on Tuesday night as well, and showed that inflation had outperformed expectations.
[Read: <a target="blank" data-add-tracking="true" href=""><em>Kass: QE's Growing Impotence</em></a>]

The weak Chinese purchasing managers' index could weigh on the currency, but if it is resilient, then the intermediate trend of the Aussie dollar remains on its current track.

The last chart is of iShares MSCI Emerging Markets (EEM). It represents a basket of the top emerging-market equities.

The price action, similar to the two charts above, has shown a strong bottoming and solid breakout higher, with very few overhead barriers.

Although Chinese PMI's underperformed expectations, stronger commodities and a continually weak dollar should continue to push funds toward emerging markets.

A brief selloff in the morning session is expected, but true strength will allow this index to close higher on its way to the levels last seen in mid-May.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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
EEM $32.83 0.15%
FXA $73.66 -1.30%
FXI $32.11 -0.59%
AAPL $92.69 -0.59%
FB $119.49 1.43%


Chart of I:DJI
DOW 17,740.63 +79.92 0.45%
S&P 500 2,057.14 +6.51 0.32%
NASDAQ 4,736.1550 +19.0610 0.40%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs