With the international equities seeing their most downside in almost a year, is it a sign of worse things to come?
International equities have been one of the most consistent areas of strength recently. However, with disruption from the war in Iran, international equities have taken their largest hit since the Tariff Tantrum last year. Broader international equity representative ACWX has declined over 5%, marking its largest pullback in eleven months. Meanwhile, emerging markets have taken an even larger hit, with the iShares MSCI Emerging Markets ETF (EEM) within striking distance of entering a 10% correction. With the group seeing its most downside in a while, is it a sign of worse things to come?
Looking at the iShares MSCI ACWI ex US ETF (ACWX) on a more sensitive $0.50 chart, it moved to a sell signal but remains in a positive trend with support starting at $69. Previous resistance around $67.5 could also serve as a future bounce point. Additionally, ACWX continues to display a strong fund score of 5.53, highlighting the continued strength of the broader international equity group. As a result, its long-term outlook remains mostly positive. That said, emerging markets have seen the most downside within space, so have they materially weakened?
Looking at the trend chart for EEM, the stock is on a deep column of Os due to the recent pullback. However, it continues to trade well above its positive trend line and maintains its three consecutive buy signals while support lies closely at $53. Additionally, EEM holds an extremely strong fund score of 5.43. So even with recent action, emerging markets continue to hold steady as strong regions.
One important piece of context surrounding the decline of international equities was their posture prior to the selloff. International equities, and especially emerging markets, were overextended in the near-term given how quickly they shot up in recent months. Within our asset class group scores page, the All Global & Intl Diversified group previously had an overbought/oversold (OBOS) reading north of 100%, placing it in overextended territory. Meanwhile, the Emerging Markets Diversified group held an even more elevated OBOS reading of 200%—its highest level since 2010. Both groups have now reversed into normalized territory, and their previous levels and subsequent pullback serve as a cautionary tale to closely monitor groups while in overextended territory.
With international equities sitting atop DALI while different representatives continue to hold technical strength, the broader asset class appears fine for now. If anything, the recent pullback leaves the group in actionable territory for those that had yet to add sufficient exposure. Plus, international equities still outpace the S&P 500 (SPX) by a good margin on a YTD basis. That said, relative strength changes quickly, especially during periods of heightened geopolitical conflict, making it even more important than usual to monitor the latest relative strength developments.
