NEW YORK ( TheStreet) -- Investors are choosing emerging-market equities over U.S. indices as the government shutdown continues.
Volatility is spiking, and traders are bidding bonds higher. That has hurt U.S. equity indices, while emerging markets have diverged on a path toward relative strength.
Emerging-market equities saw weakness during the period leading up to September's Federal Reserve meeting. Investors expected monetary stimulus to be reduced and thus higher interest rates.
When the Fed did not come through on expectations, emerging equities were bid higher and ultimately crashed lower in subsequent days back to their intermediate support line.The chart below is of iShares MSCI Emerging Markets (EEM). The weakness many emerging economies faced due to the rumor of tighter U.S. monetary policy caused valuations to become cheap and thus attractive. The index has been bought off of support levels and is now pushing higher as U.S. equities fall. (VXX) is nowhere near the levels that would be anticipated if investors truly thought the U.S. government was going to default. Still, investors are proving their mistrust in the U.S. by pushing riskier investments abroad. At the time of publication the author had no position in any of the stocks mentioned. Follow @AndrewSachais This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.