Technical charts hint at more fund flows to emerging markets

ETIG: Emerging markets may report a fresh bout of investments, given the break out on technical charts, which has been formed for the first time in nearly seven years. On weekly chart, the MSCI EM index is nearing the Golden Cross -when a 50-week moving average breaches the 200-week average, reflecting a stronger support at current level. Recently, US Fed Chair Janet Yellen indicated that the era of cheap money may not end anytime soon.This reduced the probability of a Fed rate hike in December 2017 to 45%, from 66% a month ago. These factors are expected to calm investors who were turning cautious.

The MSCI Emerging Markets index-a gauge for global fund managers to benchmark their portfolios -has seen one of the best strings of monthly gains in the first half of 2017, since 1993.

The 50-DMA of the MSCI EM is set to cross the 200-DMA. This would be perceived by investors as an affirmative cue for continuation of the rally. The last time's Golden Cross formation in 2011, the EM index had gained 30% in the subsequent 11 months. The conviction of investors towards EMs can be gauged from the fact that the ProShare Ultrashort MSCI EM ETF -an instrument that bets on the opposite direction of MSCI EM index -has plunged to a record low.

In addition, the softness in the US dollar is helping investors to raise wager on emerging markets. The dollar sank to a 10-month low after the weaker than expected economic data raised doubt over the prospects of additional interest rate cuts by the US Federal Reserve. According to Commodity Futures Trading Commission data, hedge funds and other speculators raised their net-short bets on the dollar to the most since February 2013.