Volatility in emerging market ETFs recently fell to the lowest level in at least a decade but could be poised to rise. Because of their sensitivity to global risks, emerging markets have been known historically for their volatility. [Emerging Market ETFs See Inflows as Volatility Lowest Since 2003]
“Emerging market stocks are a great area to watch for a read on global sentiment, given that most EM countries are dependent upon cyclical growth expectations and export demand,” writes Micahel A. Gayed, chief investment strategist and co-portfolio manager at Pension Partners, for Seeking Alpha.
During the hype surrounding the so-called fiscal cliff, the emerging markets outperformed the U.S., but the opposite occurred after a deal was reached.
“Clearly investors do not necessarily need emerging market stocks to lead in order for a risk-on environment to take place, but movement coincides with sentiment on cyclical expectations for growth,” Gayed added. “I wonder if this is more of a larger warning that the strong start to risk assets may soon be over.”
For instance, in comparing the iShares MSCI Emerging Markets (NYSEArca: EEM) to the SPDR S&P 500 ETF (NYSEArca: SPY), EEM has been underperforming SPY so far year-to-date.
Start of a trend?
Chart source: Pension Partners ...
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