Emerging markets’ recent rally has been positive enough to cause the RS chart between EFA and EEM to reverse down into a column of Os, favoring emerging markets for the first time since 2021.

Through the first month of Q4, emerging markets have outpaced their developed market counterparts by more than 1.5% (thru 10/27) looking at the iShares MSCI Emerging Markets ETF (EEM) and iShares MSCI EAFE ETF (EFA). This continues a trend that began in Q3, though both have improved on recent highs with EFA trading at all-time highs and EEM at fresh 52-week highs. EEM has simply outpaced EFA and the broader market in recent months, leading EEM to a stellar fund score of 5.61, while EFA’s is still a strong 4.4. The notable difference between the two ETFs’ fund scores lies in EEM giving a market RS buy signal against the S&P 500 Equal Weight Index (SPXEWI) back in September, while EFA maintains a market RS sell signal given back in December 2009.  

Emerging markets’ recent rally has been positive enough comparatively to developed markets to cause the RS chart between EFA and EEM to reverse down into a column of Os. Prior to the reversal into Os on 10/27, the chart had been in a column of Xs since May 2021, highlighting developed markets during that period with EFA outperforming EEM by more than 17% (5/5/2021 – 10/27/2025). With the inverse RS chart of EEM vs. EFA having been in Xs since late September, the EFA vs. EEM RS chart reversal offers further confirmation of emerging markets superior performance in the near-term.

While the EFA vs. EEM RS chart (as well as its inverse) continue to favor developed markets (EFA) in the long-term, the reversals to favor emerging markets during the short-term gives enough evidence to add more emerging markets exposure to an international allocation.