Emerging market divergence

22Sep08

We had gotten away from posts that included “charts that need no further explanation.”  This chart shows the relative performance of an emerging market bond ETF (PCY) against an emerging market equity ETF (EEM).  After a nearly year long period of outperformance emerging market bonds underperformed last week in a big way.

We have no great explanation for what happened other than the fact that all credit-related assets took a hit last week.  Emerging market bonds did not escape the sell-off.  Forced liquidations, perhaps?  We are not sure, but thought it was worth throwing out there.

We understand that this is not an apples-to-apples comparison.  The emerging market bond and equity indices are comprised with different countries (and weights).  That being said, it is an interesting demonstration of how the past week has reshuffled the asset class deck.

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2 Responses to “Emerging market divergence”

  1. 1 Richard Whitney

    Just a guess, but perhaps the mid-July through mid-September part of the cart should be excised.
    Equities were taking it on the chin before the debt side. Debt is only catching up now, having realized it wasn’t immune. So the Mid-July through mid-Sept portion is the aberration.
    You can do the same with the DJIA and 1987. Just take it out entirely, connect 1986 to 1988, and the chart is smooth. 1987 was an aberration.

  2. Not sure on this as I am not an active follower of the emerging market bond scene, but it may have to with this recent shift in outlook towards emerging market assets in general:

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aL5A6s3sCzAk

    Quote from strategist Albert Edwards:

    ““Amid recent chaos, few realize that the next phase of de-leveraging has only just started,” Edwards wrote. “A key pump for global markets and emerging economies — global foreign-exchange reserve growth — is only now beginning to reverse. All things emerging-market related will crumble as the great unwind moves into a new phase.” “


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