Emerging Markets: 22nd May 2014

Measured in US dollars, emerging markets' equity performance has improved in recent months. While Asian stock markets are still -11.% over the past 12 months, YTD Asia is +6.8% in USD terms. Brazil has rallied +12.7% YTD and every emerging market is positive in 2014 with the exception of Russia, which is still -8% lower in the first 5 months of 2014.

With the recovery in performance in recent months, we have also noted the rebound in positive sentiment towards the sector. Over the past several weeks, sentiment on EEM, the emerging markets equity fund ETF, has approached 80% again, a level where it has peaked every time since 2007. 

Analysing the longer-term outlook, we are at an important juncture now for emerging market equities. If buyers persist here and EEM breaks out to new highs, despite the stretched sentiment readings, then we can make a case for a new bull market beginning in emerging market stocks. Given our broader concern for global stock markets, we do not expect a new and sustained bull market for EEM, but we will let the market guide us here. A clear break of $44.50 on EEM would be are very positive development.