We talked a lot over the course of the week about emerging markets.
Specifically, we noted that emerging market stocks have risen for eight months in a row (longest streak since 2004) and everyone’s favorite EM ETF (EEM) has outperformed SPY for six straight months, the best such stretch since February 2005.
Unsurprisingly, Chinese equities have had a remarkable run. Indeed, the MSCI China has also rallied for eight straight months for only the third time in history.
Somewhat surprisingly given what happened in August, we haven’t seen much discussion of the fact that amid the EM euphoria, South Korean shares snapped their run of gains, falling for the first month since the U.S. election:
So for all the talk of how risk assets have largely ignored the threat of nuclear war, we would note that the risk assets of the country most exposed to that threat were not in fact immune, as what would have been a 9-month win streak was lost in the fog of a maybe-war.
This is a great time to remind you that it was just a little over a month ago when we said the following about South Korean equities:
Well, as you ponder the inherent contradiction in record high regional stocks, a tsunami of capital inflows, and the threat of an imminent nuclear confrontation on the Korean peninsula, we thought you might be interested in the following chart:
As BofAML notes, “inflows into Korean equities have surpassed YTD highs in the last five years.”
Meanwhile, in bonds, Korea has been the highest recipient of offshore money in the entire region, recording about 26bn USD of inflows.
Broadly, this has been the best year for inflows into EM Asia in the last half decade:
What could go wrong?