To The Moon

we are seeing some fairly stark recent developments in profitability across the major chunks of global equities.

The USA has peaked but remains on top, EM is middle of the pack but accelerating higher, and the rest of developed markets has rolled over from typically mediocre levels.

In fairness, RoE is inherently a backwards looking metric, it looks at historical earning in relation to owner’s equity. And in practice it does tend to lag the market.

But that does not mean we should ignore it. RoE trends can help reinforce price trends, we can also at times extrapolate nascent trends in RoE around turning points, and it helps understand price performance and valuation differences.

In this respect, that developed markets are turning down basically gels with the notion that recessionary conditions appear to be developing, and helps understand some of the weakness in the stockmarket.

But Emerging Market equities have not really performed that well this year, and this stands at odds with the *improving* trend in EM RoE.

For those who are curious — the sectors within EM that have seen the biggest lift were Industrials, Energy, and Materials (commodity and manufacturing related). Makes sense given the macro backdrop, and for reference, EM has a larger skew to these sort of “old cyclical“ sectors.

Out of interest, RoE has been rising across most EM sectors (except Healthcare and Consumer Discretionary). It has also been rising across most countries within EM, exceptChina(which faces multiple macro headwinds).

So a curious chart, a curious development, and something to keep in mind as EM equity valuations and sentiment reset further lower.

 https://chartstorm.substack.com/p/weekly-s-and-p500-chartstorm-18-september