Emerging Markets

Bonds
As risky assets with attractive yields, emerging markets bonds went right up in price with
the US stock market from the autumn 2011 low into early 2013 as the market rode the
QE in prospect / QE 3 magic carpet. It was a nice total return play in both $US and local
currencies until the Fed first raised the QE taper issue in May of 2013. JP Morgan EMB


As the chart shows, the market took a serious tumble over the spring of last year as players
wrestled with the implications for capital flows of the eventual loss of the Fed's $1tril.
liquidity program. Plus, former bond darlings such as Venezuela, Ukraine, Turkey and
Indonesia hit the skids for a variety of economic reasons. Despite the recent adverse press,
the bond composite has made a moderate recovery since the middle of last year and has
been largely range - bound around the 107.5 area. The market is at a critical point here as
it is hovering just below its 40 wk. m/a and could again be looking to the US equities market
to determine whether 'risk on' trades will remain under pressure.


Stocks
With slow global economic growth in recent years as well as a deteriorating growth profile for
China, the emerging market stock composite has been in an extended trading range. EEM
A steady range bound security like EEM can be a boon for traders unafraid to play short as
well as long. The EEM composite has been hammered since the autumn when QE taper talk
fired up again and is wending its way down to another trade band low in the mid - 30s. Bet
that traders are carefully monitoring the move down toward strong support. In this regard,
since the outlook for global industrial output has improved markedly from the near stall out in
mid -2013, it may be worthwhile to keep an eye on the emerging market composite as it is
approaching an intermediate term oversold condition.