Trend Change For Emerging Markets, Or Just Another Head-Fake?

Emerging markets and developed ex-US equities are currently displaying Point & Figure relative buy signals. This technical indication, alongside substantial valuation disparities favoring international equities over domestic markets, suggests a potential shift towards outperformance for ex-US assets.

Analysis

A compelling case for a potential rotation into ex-US equities is emerging, driven by a confluence of technical and fundamental indicators. A Point & Figure relative buy signal has been triggered not only for emerging markets but also, significantly, for developed ex-US equities—a broadening of the signal not seen in prior instances. This technical momentum is underpinned by a substantial and persistent valuation discount in international equities compared to their domestic US counterparts. The combination of a technical buy trigger with a strong value proposition suggests that the long-standing underperformance of ex-US markets may be poised for a reversal. The analyst's disclosed long positions in the SPDR S&P Emerging Markets Dividend ETF (EDIV) and the Dimensional International Value ETF (DFIV) provide concrete examples of how to position for this potential shift, which is viewed with strong positive sentiment.

Key Decisions for Investors

• Investors should review their geographic portfolio allocations and consider increasing exposure to non-US equities to capitalize on the favorable relative valuation and positive technical signals.
• Examine international value and dividend-focused ETFs, such as EDIV for emerging markets and DFIV for developed international exposure, as these instruments are directly aligned with the presented thesis.
• While the outlook is bullish, it is prudent to monitor the durability of the Point & Figure buy signals, as a breakdown in this technical indicator could signal a false start to the rotation.