Everyone Loves EM — Just As Volatility Explodes
EEM technicals
EEM continues trading inside the steep trend channel that has been in place since the Liberation Day lows, but the latest move lower has been aggressive. We reversed right in the upper part of the channel and are now trading around the 50-day moving average. Channel support comes in slightly lower, around the $58 level, while the 100-day moving average sits further down near $56.5.
Source: LSEG Workspace
Not for "juniors"
The biggest problem for people trading the EM space is that most are not specialised in this area. They often buy into late narratives and get pulled into bullish or bearish cases, not realising that EM has largely behaved as a mean-reverting asset, at least over the past 15 years or so. Betting on big breakouts, in either direction, has tended to be a costly strategy in EEM. The chart shows the longer-term weekly view. Note that the 200-week moving average is basically flat.
Source: LSEG Workspace
Massive stress
The latest volatility explosion in the EM space has been extraordinary. Note that the VXEEM hasn’t closed at these levels on a weekly basis since late 2022.
Source: LSEG Workspace
Not all fear is equal
VXEEM has overshot the VIX in a way not seen in a very long time.
Source: LSEG Workspace
The dollar connection
Many have loaded up on the EM long thesis based on a bearish dollar narrative. However, the dollar has essentially gone nowhere since last May, while the divergence versus EEM has become significant. The chart shows EEM versus the inverse of the DXY.
Source: LSEG Workspace
The EM love trade
After years of neglect, emerging markets have suddenly become one of the most popular macro narratives. From weaker dollar expectations to AI-driven commodity demand, the sell-side is increasingly aligned on the idea that the next big global allocation shift will favor EM.
Still early innings
GEM price performance relative to DM… still early innings according to UBS: "Our high conviction regional long continue to be emerging markets".
Source: UBS
The EM bull
A shifting global order could mark a new bull phase outside the US, as “US exceptionalism” gives way to global rebalancing and fresh “Anything But Dollar” trades.
Emerging Markets stand out: AI boosts commodity demand (EM supply it), allocations to China and India remain low, and Chinese banks are quietly breaking out, potentially signaling a broader rotation from China bonds into equities. (BofA)
Source: BofA
Source: BofA
EM love
EM inflows are huge...
Source: GS
Cheap...for a reason?
Emerging markets still look cheap relative to developed markets on most measures.
