This Indicator Suggests Emerging Markets Rally Is Near Its End

The emerging market stock rally may be near its end.

At least that’s what Bloomberg’s Cycle Finder and Time Span tool, a technical indicator that forecasts bull and bear cycles, suggests.

The MSCI Emerging Market Index has rallied nearly 8 percent so far this year, after gaining 34 percent in 2017. While, it’s still 7 percent below its 2007 record, the index may be close to its peak.

The Bloomberg tool shows the time span between the peak of 2007 and the next high was 41 months. If extended to make forecasts, the index should have again peaked in September 2014. And that’s what happened.

The emerging market gauge rose till September 2014 and then declined more than 30 percent through January 2016. The indicator predicts the index will again peak next month.

The free-floated weighted index captures both large- and mid-cap stocks across emerging economies. The 846-member index has maximum contribution from China (27.2 percent), followed by South Korea (14.6 percent) and Taiwan (11.2-percent).

India ranks fourth with a weight of 8.5 percent across 79 stocks. The top three sectors are banks (16.5 percent), information technology (12.3 percent) and semiconductors (5.4 percent), as per Global Industry Classification Standard data available on Bloomberg.