I have been tracking the progress of European equities over the course of 2018, looking for a breakout to new all time highs to take a position in the Active Asset Allocator. So far, European equities have failed to punch through overhead resistance. The same cannot be said for Emerging markets, however. The iShares MSCI Emerging Markets ETF broke out to new all-time highs earlier this year, quite a bullish development. So far, this resistance zone has now become a key support level for the region. Emerging market equities tend to trade inversely to the US dollar, so the recent spike in USD has led to the short-term correction in EEM.
You will know that my long-term view on USD is bearish, so a structurally weak dollar could provide quite a tailwind for EEM in the years ahead. China accounts for 33% of EEM and the ETF also has a large overweight position in the technology sector, which explains its strong performance in recent years. EEM is expensive for an index-tracking fund at 0.65% AMC, which is a drawback, but a sector making new all-time highs can only be viewed as bullish.
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