Credit Suisse calls a top–temporarily–for emerging markets stocks
Credit Suisse, the Swiss investment banking and asset management giant, told clients on August 6 that emerging stock markets had hit a top after rallying 72% in five months.
The note said that six indicators had turned negative on these markets: the 200-day moving average for the MSCI (Morgan Stanley Capital International) Emerging Markets Index (EEM), the advance/decline ratio, risk appetite, cash levels, fund flows, and seasonality of emerging market stocks.
The MSCI Emerging Markets Index, for example, has climbed to the highest level above its 200-day moving average since January, Credit Suisse explained. (That’s negative since it says that current stock prices are very far above their long term support at the 200-day moving average. That makes these stocks risky.)
In addition optimism about economic growth in emerging economies has produced massive flows of cash into emerging stock markets. The rolling four-month average of flows into these markets as a percentage of total assets invested has hit 10%, Credit Suisse told clients. That’s one of the highest levels in 14 years. Why’s that a negative? Because money managers are reluctant to let their portfolios get too overweight one sector or another and with the huge gains in these markets, they’re likely to re-balance by taking some profits in these markets or at least reducing the new cash that they’re putting in. The cash position of the average emerging-market stock fund fell to just 2.3% in July. That’s less than the 3% average for the last 10 years.
Indicators can, of course, turn negative and stay negative for a long time without stocks taking a tumble.
But at the least all these indicators pointing in a single direction suggest that this isn’t the time to be putting new money to work in these emerging markets yourself.
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Ugh, I really expected a large scale civil disruption in an emerging market, like has happened in past downturns. That didn’t really happen in a major way.
I bought a bit when Iceland had its troubles, but the situation was pretty calm (guess it’s too cold, or they’re too civilized up there). I’d be surprised if SOMETHING didn’t happen with this large of a downturn.
(Not that I’m rooting for it, but I’m just “waiting for the sound of cannon” here)
Jim,
BGC is dropping like a rock today. Are you still intrested in this stock since it was in your watch list few months back? Also what is your opinion on PG and ABT for a long long term IRA account. They are looking attractive right now