54% All EM Stocks Are In A Bear Market Even As The MSCI EM Index Is Off Only 7% by Eric Bush, Gavekal Capital
Two weeks ago we noted how more stocks than you might think are in a correction. At that time, 42% of the constituents in MSCI World Index were at least 10% off its 200-day high. As of yesterday, that number has increased to 57%. If we break it out into various buckets based on the percentage away from the 200-day high, we see that 37% of stocks are down between 10%-20%, 13% of stocks are down 20%-30%, and 7% of stocks are down over 30%. However, the weakness in the developed world is just the beginning of the story. The real fireworks occur when we look at the emerging markets.
Currently, 82% of all emerging market stocks are in a correction and the majority of stocks, 54%, are in a bear market. Again, if we break the price performance distribution out into various buckets, there are 50% more stocks that are off 30% from its 200-day high than are off less than 10%. Overall, only 18% of EM stocks are down less than 10%. 29% of EM stocks are down 10-20%. 27% of stocks are down 20-30% and 27% of stocks are down over 30%.
The market-cap weighted MSCI Emerging Market Index is only down -7.33% over the past 200-days. So even though the vast majority of EM stocks are down much more than that, the largest companies are keeping the headline index price afloat. This is a great example of how looking at companies from an equal-weighted perspective can highlight the turbulence that is happening under the surface of a market-cap index. The Gavekal Knowledge Leaders Emerging Markets Index, which is an equal-weighted index of the most innovative companies in the emerging markets, is only down -4.23% over the past 200-days.