Global equities and EMFX was strong last week, but longer-term weakness persists
A stealth correction among international markets is evidenced by a low percentage of countries trading above their 50-day moving average
Emerging Market bulls cannot wait to put 2021 behind them as the group continues to lag DM
The US stock market is putting the finishing touches on one of its best years of the century. Ex-US shares, on the other hand, have seen lukewarm returns (at best) in 2021. The relative weakness out of the ACWI ex-US index is the worst since the late 1990s.
Our Global Cross Asset Market Monitor report—sent first thing each Monday to clients—highlights important macro themes and charts that stand out. This week, we spot not a new trend, but an ongoing feature of global markets: weakness in foreign shares.
Featured Chart: Global Equities Breadth Continues Running Soft
Among the top 70 countries in the MSCI ACWI index, the percentage of countries trading above their respective 50-day moving average has been in decline since the first few weeks of the year. Just as the average US stock has undergone a stealth correction in 2021, so too have global equities.
Bad Breadth: Not Just a US Story
Poor US stock market breadth has garnered much attention from market technicians, but the story is farther-reaching—the world of stocks has been in a corrective pattern for the past several months despite more than $1 trillion of global equity inflows over the last 53 weeks.
Bulls Catch a Bounce
Nevertheless, the 50-day moving average breadth across countries bounced back sharply last week from its lowest level since the pandemic panic the previous week. Perhaps Santa came a bit early for the bulls. The major headwind of tightening monetary policy from global central banks persists. The US Federal Reserve’s accelerated taper underscores the global policy pivot. You can check out our Best Charts of 2021 post for the latest readings on rate hikes.
Emerging Markets at the Center of the Weakness
The Global Cross Asset Market Monitor report homes in on emerging markets. The EM index is about flat year-to-date (including dividends) while the US stock market appears on its way to a 25%+ annual return with a whopping 69 new all-time highs with still a few days to go before the ball drops. EM peaked in February and is currently enduring a 16% drawdown (using the iShares MSCI Emerging Markets ETF as a proxy). A major EM bugaboo this year has been the persistent weakness among EM currencies.
EMFX Deterioration: A 2021 Theme
While EMFX is near multi-year lows, we noticed an encouraging sign for emerging market bulls: improving 50-day moving average breadth among EM currencies vs the USD. EM currencies likely need to show improvement for EM equities to have a sustained bullish run.
Value Stocks Have Fared Fine Despite a Higher US Dollar
Global stocks outside of the US have a long way to go. The onus is on the bulls to reverse a commanding downtrend relative to US shares. Despite value sectors having a decent year, foreign markets have been pitiful versus the S&P 500. The US Dollar’s 6% rise in 2021—while not a dramatic upside move—has hurt ex-US markets.
Bottom Line: Global equities were stronger last week with improving country breadth. Stocks look to benefit from the traditional Santa Claus Rally that stretches through Tuesday next week. Meanwhile, the S&P 500 notched a fresh record-high weekly close last Friday, despite only the Healthcare sector hitting a new peak. Ex-US equities, however, remain in a drawdown off their peak more than six months ago.
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