The EM Catch-Up Trade

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Last night, JC Parets hosted our Monthly Strategy Session, going through hundreds of charts and doing what matters most: zooming out.

This is easily one of the most valuable exercises we do to identify the direction of the primary trend while cutting through the daily noise.

One of the clearest themes was the bigger global trend.

When you look outside North America, developed markets have been on an absolute tear.

Europe, Japan, Australia—they’re all hitting new all-time highs.

These countries are built very differently from the US. Less tech. More financials, industrials, and healthcare.

And that’s exactly the point—it’s a reminder that opportunity doesn’t live in just one sector or one country.

The iShares MSCI EAFE ETF $EFA is one of the most important indexes in the world, and it’s making new all-time highs.

After going essentially nowhere for 17 years, this is a real breakout.

And when you zoom in further, the story gets even more interesting.

Emerging Markets $EEM—the riskier part of the world—haven’t even broken out yet.

We’re talking China, India, Taiwan, and much of Latin America.

The riskiest economies. The highest beta.

If these countries are acting well, it’s very hard to argue the world is on the brink of collapse. And right now, they couldn’t look healthier.

EEM is pressing against former highs from 2007 and 2021 as it tries to push through this level.

So the real question becomes:

Is 2026 the year we finally see a historic breakout in Emerging Markets?

From where I’m sitting, a catch-up trade makes a lot of sense. And a rotation into EM would fit perfectly within the global trend that’s already underway.

There are a lot of countries, regions, and individual stocks starting to set up nicely, offering attractive risk/reward opportunities.

If we get that breakout, I’m excited to dig deeper and see where the opportunities lie.

I’d love to hear your take on this theme—let me know what you think!

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Alfonso De Pablos, CMT

Director of Research, All Star Charts