Following a MACD buy signal for the MSCI Emerging Markets index in September (Chart 1), other elements are falling into place to suggest an emerging markets recovery may be close, according to David Sneddon and his team at Credit Suisse in London.
David Sneddon and his colleagues, Pascal Zingg and James Gilbert, note the following markets have already formed a base or are close to it:
1) AUD is forming a potential base in trade weighted terms (Chart 2). A close above 63.7, which is the August high and 38.2% retracement of the 2017/2018 downtrend, would mark a significant break higher and form an important base.
2) AUDUSD has cleared neckline resistance at 0.7338/46 and gapped higher, suggesting a base has already formed (Chart 3).
3) A close above $6378/94, the Autumn highs and 38.2% retracement of the June/August sell-off, would see a base confirmed for Copper (Chart 4, 3-month LSE).
4) The HS China Enterprise Index is already above its November high and a break above 11122/90 (the July-September highs) would confirm a base (Chart 5). The Shanghai Composite needs to close above 2704/18 (the November high and 23.6% retracement of the 2018 fall) to add strength to a basing story.
Given AUD’s strong positive relationship with both Copper and China and how they are all close to basing, and combined with the existing MACD buy signal for the MSCI EM Index, Sneddon and his team conclude that emerging market equities may be close to the beginning of a concerted recovery.