Emerging markets equity has seen significant technical improvement over the past few weeks.
The past week of market action has seen continued upside movement for most major international equity markets, with the iShares MSCI Emerging Markets ETF EEM and iShares MSCI EAFE ETF EFA each posting gains in excess of 1%. If we look back at the past 30 days, however, we can see that much of the improvement has come from the emerging market space, with EEM posting a significant gain of 7.88% (through 7/14). This is depicted on the trend chart of EEM, which shows that the fund has given four consecutive buy signals since moving off its multi-year low of $30.50 in March to recently reach $43.50 earlier this month. While the improvement in technical strength is easily visible from the default trend chart, we have also seen a notable rise in the fund score of EEM, which can be seen by clicking on the actual score in the upper left-hand side of the page. EEM saw its first major score gain on July 6th, rising over a full point from a score of 2.49 on July 2nd to 3.56 that following Monday. The score then underwent another significant increase later that week, as the July 9th reading saw another full point increase to 4.68. Currently, EEM remains close to that reading with a recent score posting of 4.57 following trading Tuesday. This swift improvement in score speaks to the flexible nature of the fund score system, as the readings will adjust nightly to reflect the underlying strength of the fund as examined through the 19 different factors that contribute to each fund’s score. In addition to the strong score itself, we see that EEM also carries an intensely positive score direction of 3.98, indicative of the recent ascent from its multi-year low.
Much of this score improvement can be attributed to Chinese equities, as China continues to lead the way for all non-US groups in the Asset Class Group Scores (ACGS) page with a recent score average of 4.99. China has been the highest scoring international group throughout the majority of the global equity market rally we have experienced over the past few months, and remains the only international equity group with an average group score north of 4.00. However, this continued strength has led the broader emerging market space to close the gap, with the all emerging markets equity and emerging markets diversified groups posting recent score averages of 3.59 and positive score directions of 1.99 and 2.19, respectively. Looking specifically at the score history for all emerging markets equity, we can see that this is the highest average score the group has seen since January of this year. Prior to that, the group had not scored this well since April of 2019. In fact, in looking throughout the full history of this group score, we can see that the 3.50 to 4.00 range has served as somewhat of a “cap” in score for all emerging markets equity for much of the last decade, with the exception of a one-year period from April 2017 to April 2018. The group has experienced multiple bouts of strength over this timeframe, but each have these have failed to lead to prolonged periods of strength with an average score above 4.00. The most recent rally for emerging markets makes this historical relationship a place to keep a close eye on as we head down the remainder of the year.
