Emerging Markets-How They Are Shaping Up for 2020

December 5, 2019

Mish's Daily

By Mish Schneider


I’ve heard and seen chatter about emerging markets and how they can start to outperform the US market as we head into a new year.

This is not new chatter, as a year ago I heard the exact same thing.

We all know how that worked out. The U.S. markets ruled once again.

In March 2019, LetkoBrosseau wrote a paper on the Macro Economics in Emerging Markets.

“Emerging markets have taken a key role on the world economic stage. Propelled by favourable demographics and rising incomes, these economies are growing at a pace twice that of their developed counterparts.

They now represent well over one-half of world GDP and generate more than three-quarters of global economic growth.

Yet, on a nominal basis, emerging markets represent less than one-third the value of total world stock market capitalization.”

The macro picture for 2020 might be finally catching up to LetkoBrosseau’s thesis.


Seven Points to Consider

  1. The U.S. dollar has eased while the Euro is trying to find a base
  2. Global growth has picked up, while US growth has begun to stagnate.
  3. Commodities are beginning to look more attractive
  4. The U.S. has a lot of issues on its plate-impeachment, an election, social discontent, slower earnings growth, etc.
  5. The U.S. has seen rising healthcare costs, while most emerging markets have universal healthcare coverage.
  6. The U.S. opted out of the Paris Climate Agreement, while Emerging Markets, especially China, are leading the charge towards alternative energy.
  7. The pie chart illustrates that the US and developed countries economies are shrinking while the emerging markets including China and India are growing.

Fundmentals look promising, but they mean little without a technical picture or compass that helps one define entries, risk and targets.

Looking at the weekly chart of EEM the ETF for emerging markets, the price is above all the significant moving averages.

The slopes on all of the MAs are positive.

The price of EEM hs remained in a fairly large trading range looking at the April 2019 highs and the October 2018 lows.

This is the range bulls want to see break. A price above 45-46.00 in EEM is compelling.

Where might price head thereafter?

In early 2018 EEM traded up to 52.00.

While the US market, particularly the S&P 500 and NASDAQ have made new all-time highs recently in 2019, one can see the disconnect of the underperformance in emerging markets.

Therefore, as we head into the new year, we might finally see the perfect union between the fundamental and technical picture for why EEMs can play some serious catchup to the U.S.

Here is the LetkoBrosseau Report.

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S&P 500 (SPY) 312 or the 10 DMA pivotal resistance 303.50 major support

Russell 2000 (IWM) 160.35 the support to hold and a move over 162 should help the bulls

Dow (DIA) 279.00 pivotal resistance and 272.50 support

Nasdaq (QQQ) 203.25 or the 10 DMA pivotal resistance and 196.41 underlying support

KRE (Regional Banks) 56.00 pivotal 57.50 major resistance

SMH (Semiconductors) 130.60 needs to hold with 132.10 or the 10 DMA pivotal resistance

IYT (Transportation) 188.25 key support and if fails, will impact everything. Resistance at 193.45

IBB (Biotechnology) 116.30 key support 122.97 the 2018 high

XRT (Retail) 44.15 resistance. 43-43.35 key support

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