Real quick here. Here's a chart tracking EM and S&P500 gains since the beginning of 2016:
Source: Jamie McGeever
How EM closes the performance gap
When and why should we expect EM and US stock markets to move in unison?
If they do start to better track each other, how does the performance gap close?
Given the relative value chart I showed you yesterday, it's clear that the US market is overvalued relative to emerging markets. At the same time, the fundamentals in the US are better. And I see no indications on the horizon that the difference in fundamentals between the US and the emerging markets' real economies will close. They might just increase.
But this chart suggests that when the gap between EM and the US closes, it will do so because of US underperformance...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.