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Financials Breaking Above 61.8% Fibo Resistance

EMERGING MARKETS
  • Global liquidity and risk on environment continue to support EM equities and especially financials stocks.
  • EM MSCI financials (MXEF0FN Index) are currently breaking slightly higher than their 351.10 resistance, which represents the 61.8% Fibo retracement of the 223.80 - 429.80 range.
  • Next support stands at 366.10, which was the high reached in early January 2020 before the March panic.
  • With a current price-to-book ratio of 1.17, financials are still 'cheap' relative to the EM MSCI Index, trading at a 35% 'discount' (EM MSCI Index has a price-to-book ratio of 1.81).
  • Main risk for EM equities (especially cyclical sectors) is a sudden rise in risk aversion due to a surge in uncertainty, pushing preference for 'safe' assets such as the USD, which is usually negative for EM stocks.

Source: Bloomberg/MNI

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