If you want to determine the mood of the market don’t spend too much time analyzing traditional indices like the S&P 500 or Russell 2000, instead look to nontraditional measures such as emerging market bond funds. Flows of capital into emerging markets are typically “hot” and “fickle” as they leave at the mere whiff of trouble on the horizon as such they tend to be good leading indicators for the performance of equities in developed markets. We find the best way of analyzing emerging market debt is to look at mutual funds that specialize in emerging market debt markets. Have a look at the charts below, there does not appear to any problem with emerging market debt and by implication if there is no problematic behavior in risky emerging market debt then there should not be any real problem in other risky asset classes – i.e. US equity markets. The four charts below are some of the bigger emerging market debt funds:
Until emerging market debt funds break down we consider the recent weakness in equity as a buying opportunity rather than selling.
