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The euro-area debt crisis, the so-called taper tantrum in 2013 and the oil-price meltdown of 2014 all have one thing in common. They tethered the MSCI Emerging Markets Index below the 1,100 mark.
An $8 trillion rally since 2016 helped the equity benchmark for 24 major developing nations break away from that pattern. But the gauge fell back into it on Tuesday, and now a bear market is just a bad week away.
As Donald Trump’s trade war undermines risk appetite and spurs a flight of capital from emerging markets, stocks are taking the worst hit, belying expectations earlier this year that the slump would be largely confined to bonds. Tuesday’s drop below 1,100 suggests that the asset class — which remained resilient in the wake of the Federal Reserve’s interest-rate hikes, numerous political crises and oil-price fluctuations — is succumbing to concern that a tit-for-tat tariff showdown will crimp global economic growth.
The index is showing other signs of strain. Losses in the past five days have taken it decisively below the 23.6 percent Fibonaccci Retracement level, setting it on course to drop another 3 percent to 1,052. If that support is breached, emerging-market stocks may enter a bear market at about 1,018, fall below the 1,000 mark and head all the way to 982.
That would hand investors a total loss of 23 percent from January, when the index was at a 10-year high.
Bearish technical signals also appear at the end of a slump, thereby acting as a precursor to a rebound. A return above 1,100 will take the MSCI index back into a downward channel it has been trading in since January, indicating short-term gains within that band. A breach of its upper bound might suggest the second leg of the stalled rally may be round the corner.