Monday, October 15, 2012

In response to Brazil’s finance minster calling US monetary policy “selfish”, Ben Bernanke told the annual IMF conference that the emerging economies should embrace strong currencies that result from easy US monetary policy.  Money goes where it’s treated best and although Quant doesn't measure a given country’s currency rate, it has been capturing the hot money flows into the emerging markets. The iShares MSCI Emerging Index Fund (EEM) has been ranking highly for months but not as high as today’s 3rd place.  Large, liquid and from a strong sponsor gives the fund a high 96.9 Quality Score to offset its meager 55.9 Global Theme Score.  Both account for 10% each of the Overall Score which is driven more by Fundamentals which score a pretty good 78, and Behavioral scoring at 72.3.  Within the Behavioral categories, the Technical scores are good but not great at 63.7 on the composite where the short term has been gaining recently.  It’s the 80.9 Sentiment Score that stands out with a 99.8 Short Interest score and an 87.6 Put Call score both implying the market may expect weak exports to hamper the emerging economies.  The past decade should prove to anyone that a weak currency is not the path to national greatness. Quant doesn't need such reminders, it follows the money which these days means into emerging markets.  Another one to watch is the WisdomTree Emerging Markets High-Yielding Fund (DEM) in 13th place today, its highest rank in several months.  WisdomTree specializes in fundamentally weighted indices and this one scores an 80.4 in the Fundamental category.  Improving technicals are also pushing it up but again its Sentiment scores are higher than most with Put Call and Short Interest scores implying market skepticism on the emerging markets.  Interestingly, both funds have low volatility scores which are scored differently from the Red Diamond Risk Ratings as Quant looks at this category in a contrarian way.  Volatility peaks are more common at bottoms than tops.  Deep Throat told Woodward and Bernstein to follow the money and Quant is telling us that leads to the emerging markets.

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