MSCI Emerging Market
For years, we’ve noted the increasing valuation gap between domestic and foreign stocks. And for years, we contended that the most likely catalyst for a narrowing of that gap would be a recession-induced cyclical bear market in stocks. Evidently the 2020 bear market was not big enough to do the job.
The Major Trend Index has remained in neutral territory during the last several weeks of upside action, suggesting there remain significant fundamental and technical shortcomings beneath it all. But this precarious MTI stance didn’t preclude us from acting on a new bullish reading for Emerging Market equities at the end of April.
Foreign equities beat the U.S. in the first quarter, but the performance gap that’s opened up since the 2007 market highs remains astounding. While foreign equity valuations (especially within EM) have rebounded from February 2016 lows, the bounce has done little to close the enormous P/E discounts relative to the U.S. market.