A Disturbing Global Shift Toward Financial Conservatism
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Originally published Nov. 6, 2015.
An excerpt from our new State of the Global Markets Report -- 2016 Edition
Our monthly Elliott Wave Financial Forecast has been tracking a steady global shift to greater financial conservatism over the last several months.
As we noted in October, the long duration of the transition from a "risk on" to a "risk off" attitude suggests that the next decline will "go deeper and last longer than that of 2007-2009," which was the biggest bear market since the Great Depression.
The relationship between the MSCI Emerging Markets Index and the MSCI World Index on the following chart shows a trend away from risk that will gradually widen into a trend out of all equities.
The MSCI Emerging Markets Index comprises riskier stocks, and it made a countertrend rally high in September 2014.
The blue-chip World Index comprises shares in more developed countries, and it made its all-time high in May of this year.
The current rally shows how much the MSCI Emerging Markets Index is lagging. In fact, it retraced only about a third of its most recent decline while the MSCI World Index retraced two-thirds of the sell-off from its May high.
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This article was syndicated by Elliott Wave International and was originally published under the headline A Disturbing Global Shift Toward Financial Conservatism. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.