Do Struggle Markets Deserve Respect?

In a post-crisis market, some countries trade at a premium because they possess the ability and the stomach for high stakes QE. Emerging markets and economies that are important enough to ignite contagion but not resourceful enough or structurally capable to solve their own problems make up an entirely different group. They constitute a new asset class known as the Struggle Market. Notable members are a couple BRICs and most of the Euro periphery.

The struggle market usually only commands attention only when things are going bad — like, systemic failure bad. Once the drama is over, it’s easy to forget about these markets and the productive assets that inhabit them. At the moment, struggle markets are putting up some impressive numbers and quietly attracting the attention of portfolio managers looking to play catch-up. Many have yet to hit new 52-week high and look very attractive from a technical perspective. The promise of momentum fueled break out and room to run are quite enticing.

Here’s a performance report for world indices for the last month:

1-month-returns-world-indicies-april-30-2013

Struggle markets are at the very top of that list.  Look at Brazil, Spain, Italy, and India below: all still below their recent swing high and begging to breakout.

ewz-april-29-2013

ewp-april-30-2013

ewi-april-30-2013

 

indy-april-30-2013

 

I see the struggle market theme gaining traction. The upside is certainly there, but wholly dependent on bullish conditions persisting.

For high-risk players, the struggle market represents an avenue for squeezing a little more juice out of the bull run. For those still long or neutral, these instruments represent a new battle ground for risk. I’m hoping the trade become completely mainstream so I can add the names above to the Yen as an early warning of risk off activity.

What is the catalyst to drive these markets higher? Why invest in any country where QE is not driving the economy? Why would any investor believe that the next crisis isn’t just around the corner?

The wall of worry appears to be stacked quite high. Maybe that’s not such a bad thing.


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