There’s been a lot going on in emerging markets recently. Whether it’s political drama in South Africa, Malaysian elections, Argentina’s emergency rate hikes and request for IMF assistance, or the ongoing meltdown of the Turkish lira, it’s all a lot to stay on top of. Especially for investors that don’t spend their days in the weeds of EM, how to follow it all? Bespoke has a range of tools that can help.
First, one of the easiest ways to keep track of how things are going is to watch the value of EM currencies (EMFX) versus the dollar. We like to use an index of 20 equally-weighted EM currencies to get a broad feel for how things are going. The absolute level of the index is somewhat arbitrary, but since it captures the performance of a broad range of the asset classes, its trend gives a good feel for how things are going. As shown below, it’s been a pretty rough run of late. We also show the 3 month change in the index, which is useful for comparing how painful periods of stress are; the current selloff is akin to the dollar rally post-election, but not as bad and not as sustained as things were in 2015-2016. Of course, this measures spot only, so it’s only a rough gauge rather than a performance benchmark.
It’s also helpful to look at other asset classes. Using our Chart Tool, it’s easy to keep an eye on charts for relevant assets. The EMB ETF tracks USD-denominated bonds issued by EM governments, so it’s an interesting place to look.
Remember, though, that while these USD bonds trade at a spread to US Treasuries, they’re still very sensitive to moves in US interest rates that may have nothing to do with EM performance. So we also keep a close eye on local-currency EM debt via the EMLC ETF. Prices of this ETF are a function of both EMFX and EM local currency interest rates.
What about equities? EEM is the classic, highly liquid and representative of the broad EM space. Be careful, though: Chinese companies listed in Hong Kong are a huge weight, which can sometimes skew the message it sends.
In a recent Chart of the Day, we highlighted the extremely large share of EEM taken up by a single company, Tencent:
It’s always worth checking in on EMXC too, the EM ex-China ETF. A recent launch and not very liquid, this ETF nonetheless is probably more representative of thematic EM equity performance than EEM because it isn’t so heavily weighted to the rather unique Chinese equity markets.
If charts are your thing, you’ll also love our Chart Scanner tool, which allows you to quickly scan a large number of charts. One pre-loaded portfolio focuses on country ETFs, including a number of country-specific equity ETFs for EM (note: while included in the example below, the UK is not considered an EM).
Another helpful tool we’ve developed for looking at ETF data in bulk is our Trend Analyzer. This tool allows you to quickly size up the trend and tactical movement for a wide range of ETFs or stocks, including custom portfolios. Below we show a custom Trend Analyzer portfolio focused on EM ETFs.
Each week, Bespoke Institutional subscribers receive a chartpack highlighting financial market and economic data in a standardized format across 23 major global economies including a number of emerging markets. Below, for example, we show the data for Brazil in this week’s Global Macro Dashboard, sent out this morning.
Looking for more in-depth analysis that goes beyond price action? We regularly recap economic data, cross asset performance, and analyze various EM economies and related assets in The Morning Lineup, The Closer, and our Fixed Income Weekly. Below is an example, with charts we included with this week’s Fixed Income Weekly dealing specifically with the mess ongoing in Turkey.
To gain access to all of the tools described above, please sign up for a Bespoke Institutional trial. Some reports and tools are available at other levels, but Institutional clients receive access to ALL of our research and tools.