So, oil's in a bear market again. The good news for emerging market investors is that this time their assets aren't tracking its descent. Unfortunately, history and statistics suggest this may not last.
Crude has fallen more than 20 percent from a peak reached in June, with Saudi Arabia cutting prices on Asian shipments and further increases in U.S. drilling sparking a 3.7 percent tumble in the West Texas Intermediate benchmark on Monday. Yet emerging market stocks and bond indexes are still holding on to recent gains.
Oil often leads the prices of other commodities, which are key to major emerging economies such as Russia, Brazil or South Africa. Hence, it makes sense that their assets would suffer when the black stuff loses value.
The 10-day correlations between oil and the MSCI Emerging Markets Index as well as the Bank of America Merrill Lynch EM corporate bond and high-yield indexes have all turned negative and are at some of their lowest levels this year.
Curb your enthusiasm, though. Over the past five years, the measure has on average been positive.
That means that unless oil reverses course and starts rallying, emerging market bonds and stocks are likely to revert to the averages and start following black gold down. The sticky stuff is still treacherous for this asset class.
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