Nothing like doubling the gain on SPY over the first half to get some attention.
Jeffrey Gundlach has been totally on top of this idea for quite some time. At a conference earlier this year, his idea for one trade was a pair with SPY short and EEM long. This doesn't imply bearishness for SPY; it implies greater bullishness and upside potential for EEM. He has recommended higher weightings of emerging market stocks in portfolios well before this as well.
The chief strategist at Oppenheimer is saying this move could have a long way to go. I completely agree. Emerging markets are very under-owned in portfolios despite China and India being responsible for so much more global GDP growth than USA.
But as you know by now I like to tell the story with charts. Here is a nifty EEM vs SPY comparison. These are all ratio charts, which show EEM vs SPY in one % based measure.
From 2004
EEM above SPY by 140% at the peak of China's bubble - just to let you know that yes these stocks can outperform significantly.
From 2010
This decade pretty bad for EEM until recently. Note - this is not saying EEM was down by 50% as an asset class. It is saying EEM lagged SPY by -50%.
From 2013
Moving to a weekly chart now. USA QE pulverized EEM compared to SPY, and then in 2015 oil crashed.
From 2014
Less bad but still down.
From 2015
$USD strength and oil crash worked against EEMs. Still weaker than SPY by -8%.
From 2016
Wow! +15% from beginning of 2016 which included a dive back to zero after the election. This year has made it all back! So really we're talking 6 months into an outperformance of a trend that had been in play since 2007.
The most interesting thing to me is the current top 10 holdings of EEM. Korean and China tech! Oil weakness won't matter as much. Since everyone already owns Google, Apple, Facebook etc, and comparatively few own Tencent, Alibaba, etc, I am expecting to see pivotal strength for EEM for a considerable period ahead.
