Tuesday, June 09, 2009

On the Radar: Emerging Markets Stocks

We recently took a look at how emerging markets have outperformed the U.S. and Europe during 2009. While U.S. large caps are hovering near their highs (DIA, bottom chart), emerging market stocks (EEM, top chart) have been lagging. I view the relationship between EEM and the major U.S. indexes as a sentiment measure: if traders and investors are in a risk-seeking mode, they will prefer the growth-oriented emerging economies to the more established U.S. and European ones. Conversely, when avoiding risk, investors will place their money in the most secure economies. I'll be watching this relationship for any signs of thematic shift.