Analysis: No end seen for emerging markets decline

The index now stands at a five-month low of around 731 and, from a technical point of view, the breach of support at the 750 level does not bode well in the short-term.

By SETH FREEDMAN
bloom graph 88 298 (photo credit: Bloomberg)
bloom graph 88 298
(photo credit: Bloomberg)
Since its all time high on May 8, the MSCI Emerging Markets Index has collapsed by 16 percent, with no end to the decline in sight. The index now stands at a five-month low of around 731 and, from a technical point of view, the breach of support at the 750 level does not bode well in the short-term. Support refers to the price level where, historically, buying has proven to be strong enough to prevent a further decline in price. In March, the index came off sharply from nearly 800, and buyers only emerged at 750. This was the case several times over the last week as well, though to have closed below 750 will be off-putting to many potential buyers. This means that, with no buyers in sight, the index could potentially drift as low as 700, where there is the next solid level of support. This would represent a 6% fall from current levels, and would have serious ramifications for the underlying indices involved. The rate of ascent for the MSCI Emerging Markets Index which brought it to its recent record has been very steep - back in October it only stood at 600 - which indicates that it could well have run ahead of itself, and a correction is likely. Technical analysis is the study of trading based on previous performance, focusing exclusively on price movements rather than the fundamentals of the index/currency involved.