Emerging Markets? More Like Diverging Markets

The following originally appeared on Tradestation's Market Insights blog

A sharp dichotomy has appeared in emerging markets as Asia struggles and oil rallies.

The iShares MSCI India ETF INDA is down 8 percent in the last two weeks and the iShares China Large-Cap ETF FXI has declined 2 percent. Meanwhile, the iShares Brazil MSCI ETF EWZ ripped 13 percent and the Market Vectors Russia RSX has gained 3 percent. 

Several forces are pulling the once-united emerging markets in different directions. Indian stocks have followed their currency lower as currency markets worry about rising inflation and dependence on foreign oil. Remember that selloff in the Turkish lira over the summer? The rupee is experiencing something similar right now.

The story in China is better known as President Trump hammers its key factory sector with tariffs. That’s increasingly stirred alarm, with The Wall Street Journal, J.P. Morgan, CNBC and Premier Li Keqiang all making negative comments on the Asian giant in the last month. (Market Insights saw this coming in June and July.)

The other big catalyst is oil. Brazil is roughly the world’s tenth-biggest producer, while Russia is in the top three (vying with the U.S. and Saudi Arabia). WTI Crude Oil Futures (@CL) closed at their highest level yesterday since July 2015. The commodity’s been rising as the deadline for sanctions against Iran draws near.

Clients may notice that the split between Brazil, Russia, India, and China neatly divides the old “BRIC” grouping in half. Last decade they often moved in tandem on a simple enthusiasm for global growth. But a lot of time has passed and now the market is seeing two very different trends take hold.