Emerging-market stocks sink to record low during Israel-Hamas conflict

Emerging-market stocks have sank to their lowest level in 36 years, relative to the S&P 500 (^GSPC). The market continues reacting to the Israel-Hamas conflict alongside fears of broadening tensions between the U.S and Iran. Yahoo Finance Reporter Jared Blikre joins the Live show to break down the numbers and their impact on global currencies.

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Video Transcript

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BRAD SMITH: Emerging market stocks sinking to its lowest level in 36 years relative to the S&P 500 after Israel's retaliation against Hamas. Investors fear a broader conflict between the US and Iran. More on emerging market stocks. We've got Yahoo Finance's reporter Jared Blikre. Hey, Jared.

JARED BLIKRE: Hi, Brad, and when you say the lowest level, that's the chart that we're looking at right here. This is the MSCI Emerging Markets Index versus the S&P 500. It's a ratio. It goes all the way back to 1990.

When it's going higher, that means emerging markets are outperforming the US. And when it's going lower, as it has been for over a decade, that means that emerging markets are sinking, are actually underperforming the US. And now we just hit the lowest level in this data set, and a lot of this has to do with the strength of the US dollar.

The US has some of the highest interest rates in the developed world. And this is a US dollar index chart over the last two years where you can see is the trends are largely up. And we're just finishing another up leg right here-- I don't want to say finish; it could continue-- but this latest up leg has really given a lot of stocks not only emerging markets but also in the US some trouble here, commodities and cryptocurrencies as well.

So let me go and show you the currencies. This is the US dollar year to date versus all these different world currencies, not exhausted, but you can see the United States dollar is up 98%-- basically doubled-- versus the Argentine peso that is very-- that is-- ouch is, I think, that's the only word I have for that.

Then we have the Turkish lira. The US dollar has advanced 50% versus that. Then you have the ruble, Japanese yen, the Israeli shekel, and then also the South African rand. So all of this strength weighs on these currencies, and so what you end up with is a situation where they're largely mean reverting.

Now let me show you some of the world indices. This is also calculated year to date. In the lower part, you will see that Jakarta, that is down actually about 12% year to date. You can also see some weakness in Malaysia. That's down 4%.

You go up a line, and South Africa-- we were just talking about the rand-- sinking versus the dollar. That stock market has barely treaded water, just up 1% this year. But, for that matter, the Russell 2000 is right there with it. Mexico is up about 3%. Brazil, interesting story, let's take a look at the five-year chart.

They were one of the first to raise interest rates among the emerging markets-- in fact, in the entire world-- in 2021. And you can see, as a result, rather than going down, at least they've been going sideways over the last few years, and they are up a bit this year. You can see 6%. And then a similar story for the Bombay Stock Exchange except that's largely from the lower left to the upper right.

Let me just close here and show you some of our other heat maps with regard to China. I'm going to be doing a deep dive, so I don't want to get too much into that. But when you do consider emerging markets, you have to consider that China is usually lumped in with them. And so if you separate China out, you get a different picture.

Now this right here is emerging markets with China versus the S&P 500. The S&P 500, this cyan line up here, manifestly outperforming the EEM stocks. And then finally, EEM versus China, not too much of a difference, but it really has widened this year. China dragging the indices down, and when you take out China, a little bit better performance, guys.