I've been alluding to the idea that several of the BRICs
(Brazil, Russia, India, and China) were gradually improving in
the last several weeks in my various Emerging Leaders reports,
and it appears that the moment is here for emerging markets to
The mini-correction in U.S. stocks which I began writing about in
early April now appears to be over, and reflation seems to be
coming back into the global psyche.
Last week's reminder by SuperBen and the League of
Extraordinary Bankers that they would step in aggressively if
Greece disrupted the global economy spurred animal spirits as
money began to get comfortable in equities again.
More so than that though, given the length of time that
emerging markets have underperformed for, it seems very likely
that a mean reversion moment may be at hand.
Take a look below at the price ratio of the Vanguard Emerging
Markets VIPERs ETF (
) relative to the iShares MSCI All Country World Index (
). As a reminder, a rising price ratio means the numerator/VWO is
outperforming (up more/down less) the denominator/ACWI.
Notice that the ratio in late May hit three year ratio lows,
and has since bounced strongly in June. The downtrend appears to
have been broken, coinciding with bond yields at historical lows
globally and continued central bank paranoia over a 2008
More so than that though, many emerging markets now sport
Price to Earnings ratios in the single digits, despite still
robust growth. As investors reprice the "it's NOT the end of the
world" trade, it likely means an upward revaluation in the
cyclical growth trade.
At least for now.
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