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Emerging Stocks Recent Rally May Reverse Soon

The biggest rally in developing-nation stocks in a year is showing signs of reversing to analysts following technical indicators.

The MSCI Emerging Markets Index rose for six straight days by a total 6.2 percent, the most for the period since September 2012, as prospects for an imminent U.S. strike on Syria eased and economic data for China improved. The relative strength index for the gauge reached 69.9 — approaching the threshold of 70 that signals a security is poised to decline — for the first time since Jan. 14. That level preceded an 18 percent slump in five months.

While developing shares advanced 12 percent since reaching their 2013 low in June and Brazil’s Ibovespa entered a bull market this week, shares are still down 6 percent this year. The MSCI gauge is headed to its biggest annual underperformance since 1998 versus the developed-nation index, which is up 15 percent in 2013. Emerging-market stocks traded at 10.6 times estimated earnings on Sept. 10, the highest since May.

The MSCI Emerging Market Index breached the upper boundary of its Bollinger band on Sept. 10, another technical indicator signaling it could be due for a reversal, data compiled by Bloomberg show.

Bloomberg [1]

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Mingze Wu

Mingze Wu [6]

Currency Analyst at Market Pulse [7]
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu
Mingze Wu

+Mingze Wu [10]