War Drums or Kumbaya?

We said last week that Quant does not do geopolitics and we can say today nor does it do music.  We watched emerging markets gyrate like whirling dervishes to a war drum beat that now sounds more like a hippie gathering.  China and emerging markets are partying on, holding 6 of the top 10 positions with SPDR’s S&P China Fund (GXC) leading both Quant and the Green Diamond models and iShares’ FTSE/Xinhua China 25 Index Fund (FXI) in third place with 9 Green Diamonds. Both funds were more stable than most during last week’s conflicting signals.

The 4 other emerging markets funds sold off early in the week and gained most of it back later, ending up at generally higher ranks.  Like the two China funds, they get there on strong Fundamental Scores meeting rising technicals as sentiment lags.  Powershares’ ADRE in 6^th place is an exception that was in 4^th place last Monday and lagged the group for the week.  iShares’ EEM in 7^th place is an exception the other way gaining top 10 status to begin September.  That worked out splendidly when the same thing happened last year, then and now were both driven by high sentiment readings.  8^th place is held by SPDR’s S&P Emerging Asia Pacific Fund (GMF) which made the top 10 for the first time on August 14^th which may have been a bit early.  It is back today after a couple of weeks closer to 25^th place with technicals and sentiment evenly balanced as the former rises and latter falls.  WisdomTree’s 10^th place Asia Pacific ex-Japan Fund (AXJL) also gained top 10 status for the first time on August 14^th and has lagged but to a lesser extent.  It has a more lopsided 87.2 Fundamental Score leading its 66.2 technical and 46.8 sentiment scores. 

All 6 funds have had meaningful corrections in 2013 and have held their late June lows.  Their Risk Ratings are generally higher than average but not by much.  A glance at their ETFG^sm Tearsheets will show that and the Red Diamond Risk Rating page breaks it out in detail.  We do not know if war is in the air or that is Kumbaya we hear in the distance but our quantitative fundamental and market driven indicators say Asia’s emerging markets are primed to outperform in whichever environment emerges.  Thank you for emerging into ETF Global^® to begin your September.