Emerging market volatility shows the cost of investing
Two months ago, we wrote about emerging markets seeing a historic run. The iShares MSCI Emerging Markets ETF (EEM) had gained more than 30% from the end of 2025 through late June, outpacing the Nasdaq-100, tripling the return of the S&P 500, and notching a string of consecutive buy signals. At that point, EEM was beginning to turnover, experiencing a 5% pullback from recent all-time highs. The question we posed then was simple: how long should we expect that run to last?
We got at least part of the answer. After topping out near $71, EEM rolled over into a sharp drawdown, falling roughly 14% peak-to-trough before finding its footing in the $61 area and clawing back toward $65. That is the kind of move that turns a smooth ascent into a genuine roller coaster—massive improvement immediately followed by a sharp correction.
What makes this pullback notable is not just its depth but its company. This marks the second 10%-plus drawdown for EEM this year. Going back to 1987, years with three or more separate 10% declines are exceptionally rare; we have only seen four previous instances including 1990 and 2007 to 2009. Those volatile years tend to result in extreme returns for EEM, both to the upside and downside. The annual returns in those years are as follows: -14% in 1990, +32% in 2007, -50% in 2008, and +66% in 2009. On the other hand, this is the 11th year of two 10% corrections. Looking at the other 10, four have seen EEM end in the black and six have seen the benchmark end in the red.
None of this should overshadow the bigger picture. EEM still sits comfortably above its 200-day moving average and remains up roughly 19% on the year, a reminder that even violent shakeouts can occur inside a larger uptrend. The recent decline saw the default chart of EEM give one sell signal after a string of five consecutive buy signals. The first sell signal in a strong uptrend is often indicative of consolidation rather than a shifting trend. The key point to monitor will be confirmation on the move, which could be seen by a return to a buy signal or at least a series of higher lows.
Turnaround Indicators to Watch
Underneath the volatility, there are some indicators to watch for stabilization signals. One of the clearest examples are our bullish percent charts for funds. As a refresher, a bullish percent reading measures the percentage of all ETFs and mutual funds within a group that are currently on a buy signal on their point & figure charts. It is a breadth gauge: the higher the reading, the more names participating on offense; the lower the reading, the more washed-out the group.
Two readings are worth watching here for the strength. The BP for All Global and International funds (^BPMUGIALL@2) has weakened and remains in a column of Os, sitting at 69% based on the data through Monday (8/10). While this reflects the recent selling pressure, we still see more than two-thirds of international funds on buy signals.
The more compelling indicator to watch is the Bullish Percent for Emerging Market Equity funds (^BPMUEMERGE@2), which fell to washed-out territory at 20% during the selloff. However, the chart now sits closer to reversing back into a column of Xs than it does to adding another O. A reversal higher from oversold levels would mark some participation stabilization and is a key point to monitor in the days ahead.
The correction did real technical damage, but it also flushed the group to the kind of depressed breadth readings from which recoveries can build. We are not calling an all-clear, we want to see those reversals for confirmation, but the raw materials for a turnaround are lining up.
Country Relative Strength
The country-level picture is where this stabilization gets interesting, and it's where the leadership for the next move is likely to emerge. Taiwan (EWT) and Singapore (EWS) are the two names climbing our radar. Our NDW Country Index Matrix ranks 41 countries by relative strength. We typically look toward the top 10 as recommended buys, and the next 11 as holds. Taiwan still sits in the top three and has maintained a position in the top 10 since March of this year. Singapore sits in 11th, just outside of the top end of the rankings, but has the fifth best near-term relative strength of any country.
Those looking to monitor individual positions can look toward the iShares MSCI Taiwan ETF (EWT) and the iShares MSCI Singapore ETF (EWS). EWT was at a double top formation and returned to a buy signal with a move to $104. The fund has maintained a strong fund score at 5.75 and demonstrated a return to favorable relative strength against the equal weight S&P last week. On the other hand, EWS was not hit by the consolidation the same way other countries in Asia were. The fund sits on three consecutive buy signals and is currently at all-time chart highs. While the technical picture is strong, EWS is in an overbought position, exposure might be best considered on a pullback.
