WEAK DOLLAR ALSO BOOSTS EMERGING MARKET ETFS -- SOUTH KOREA ETF IS BREAKING OUT -- TAIWAN IS ALREADY IN RECORD TERRITORY

EMERGING MARKET ETFS ALSO BENEFIT FROM WEAKER DOLLAR... My earlier message today made the point that a weaker dollar is benefiting foreign stock ETFs that are quoted in dollars.   The message showed the rising euro benefiting eurozone ETFs with Germany on the verge of a bullish breakout.   The same principle holds true for emerging markets which have been doing even better than foreign developed markets.

The daily bars in the lower box in Chart 1 shows Emerging Markets iShares (EEM) nearing a test of their February high.  The middle box shows a ratio of the EEM divided by the S&P 500 rising since May.  That means that emerging markets ETFs have been outpacing the U.S. over the last three months.   And that has a lot to do with the fact that EM currencies are rising against the dollar as well.   That can be seen in the green line in the upper box which plots the WisdomTree Emerging Currency Fund (CEW).  It can be seen that the two upper lines are rising together.   Which means that a weaker dollar, and rising EM currencies, are increasing the appeal and performance of EM stocks.   That's especially true of emerging market ETFs that are quoted in weaker dollars.

Chart 1

SOUTH KOREA EXPERIENCES BULLISH BREAKOUT...TAIWAN HITS NEW RECORD... Although China is the main driver in Asia, a couple of other Asian ETFs are looking even stronger.   The weekly bars in Chart 2 show the MSCI South Korea iShares (EWY) rising above their early 2020 peak to experience a bullish breakout.   Taiwan is doing even better.  The weekly bars in Chart 3 show the MSCI Taiwan iShares (EWT) already in record territory.   The fact that both ETFs have a heavy technology component is giving them a big lift.   That includes Samsung Electronics in South Korea and Taiwan Semiconductor in that country.

ADDED BENEFITS OF WEAKER DOLLAR... There are some other benefits of a weaker dollar for emerging markets.    A weaker dollar makes it easier for emerging markets to pay dollar-denominated debt.  Emerging markets that export commodities (like Brazil and Russia) get an added lift from a weaker greenback and stronger commodity prices.  The fact that foreign stocks are outpacing the U.S. is also broadening out the global stock market rally and is an encouraging sign for the global economy.   There's some benefit for the U.S. as well.   A weaker dollar makes American exports more affordable which favors large multinational stocks that do a lot of foreign business.

Chart 2
Chart 3
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