In this Relative Rotation Graph showing selected global indices against the DJ World Index, we can see how relative outperformance has now become dominated by Emerging Markets.
The Leading Quadrant of our RRG chart is dominated by Emerging Markets. We have included the MSCI EM Index itself plus a sample. Somewhat surprisingly, the FTSE joins them there. It is looking very good from a relative point of view. Established indices are fairing less well – crowding the bottom left of the RRG. The S&P is close to the benchmark and has just passed into the Weakening Quadrant. The role of leading relative outperformer has moved to the Emerging Markets after the S&P holding the crown until recently. As the US makes up the largest part of the DJ World Index by far, the SPX is unlikely to move far away from the center of the chart but the heading of the tail on the SPX is sending a clear signal at the moment. The SPX is heading the wrong way. The message is: lighten up on US securities and build Emerging Markets and the UK.
Trevor Neil is a Director of RRG Research
RRG, Relative Rotation Graphs, JdK RS-Ratio and JdK RS-Momentum are registered TradeMarks by RRG Research