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.

EM Stocks Bear Market

EM Stocks Bear Market

 

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%.

EM Stocks Bear Market

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.

EM Stocks Bear Market