Emerging Market equities look like they have completed an important top, reinforcing their underperformance trend, according to David Sneddon and his team at Credit Suisse in London.
A sharp fall in EM equities, driven mostly by the falls in China, has resulted in a break of a key cluster of supports in the headline MSCI EM index (Chart 1). Sneddon now looks for further outright EM weakness, which reinforces his existing call for EM equities to continue to underperform Developed markets.
Sneddon’s view is further supported by the fact there is no sign of a momentum turn in Equity Risk Appetite, despite the move into “panic” territory (Chart 2). Only a confirmed weekly MACD cross higher would mark a change in momentum but he says this looks unlikely to happen any time soon. Until it does, Sneddon’s view is that EM equities will continue to underperform.