Stylized bull and bear facing each other in a vibrant cityscape representing emerging markets.

Decoding Emerging Markets: Can Technical Analysis Give You an Edge?

Jordan Keane in Business & Economy August 2025 • 4 min read.

"A practical look at using technical analysis to navigate the complexities and potential of emerging market investments."

For investors seeking opportunities beyond established markets, emerging economies present a tempting mix of high growth potential and increased volatility. Navigating these markets requires a different toolkit than traditional investing, and technical analysis (TA) offers a unique perspective.

While fundamental analysis focuses on a company's intrinsic value, technical analysis examines market-generated data – price, volume, and related indicators – to identify potential trends and trading opportunities. The core idea is that historical patterns can provide insights into future price movements.

Many investors allocate to emerging market (EM) exchange traded funds (ETFs) and often follow a buy-and-hold (B&H) strategy. But is there a better approach? Can investors use technical analysis to improve their returns even when considering risk and transaction costs?

Technical Analysis in Emerging Markets: Does It Really Work?

Stylized bull and bear facing each other in a vibrant cityscape representing emerging markets.

Technical analysis (TA) is a method of evaluating investments by analyzing statistics generated by market activity, such as volume, open interest, past prices, and various indicators calculated from prices and volume. The underlying assumption of TA is that past price and volume data, including closing prices relative to the day's high and low, and various other indicators derived from historical data and volumes, can provide insights into future price movements.

A study published in the Review of Financial Economics examined the predictive power of technical analysis (TA) in the Morgan Stanley Capital International (MSCI) Emerging Market Index (EMI). The EMI reflects the equity indices of 23 emerging market economies. The study revealed strong predictive power of technical analysis for the EMI, suggesting that TA could be a valuable tool for investors in these markets.

Key indicators used in the study included:

Moving Average (MA)
Relative Strength Index (RSI)
Moving Average Convergence Divergence (MACD)
Rate of Change (ROC)

The research investigated whether investors could leverage the predictive power of TA to outperform a traditional Buy-and-Hold (B&H) strategy, while carefully considering both risk and transaction costs. By applying the identified trading rules to the MSCI Emerging Market Index from November 1, 1988, to May 1, 2017, the study found strong empirical evidence suggesting that investors could indeed use TA to outperform the B&H strategy, even after accounting for risk and transaction costs. This finding challenges the Efficient Market Hypothesis (EMH) in the context of emerging markets.

The Bottom Line: Is Technical Analysis Right for You?

The decision to use technical analysis in emerging market investing depends on your individual risk tolerance, investment goals, and willingness to actively manage your portfolio. While TA offers the potential to enhance returns, it's essential to understand its limitations and use it as part of a well-rounded investment strategy. Remember, no investment strategy guarantees profits, and emerging markets, by their nature, involve a higher degree of risk.

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Everything You Need To Know

What is technical analysis and how does it apply to emerging market investments?

Technical analysis (TA) is a method of evaluating investments by analyzing market-generated data like price, volume, and related indicators to identify potential trends and trading opportunities. In the context of emerging markets, TA can be used to analyze the MSCI Emerging Market Index (EMI), which reflects the equity indices of 23 emerging market economies. The goal is to identify patterns in historical data to predict future price movements, potentially allowing investors to make more informed decisions than those using traditional buy-and-hold strategies.

What are the key indicators used in technical analysis for emerging markets?

The key indicators mentioned include Moving Average (MA), Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and Rate of Change (ROC). These indicators are derived from historical price and volume data and are used to identify potential trends and trading opportunities within the MSCI Emerging Market Index (EMI). Investors analyze these indicators to make decisions on when to buy or sell investments.

Can technical analysis help investors outperform a Buy-and-Hold strategy in emerging markets?

Yes, a study using the MSCI Emerging Market Index (EMI) found that investors could potentially use technical analysis to outperform a traditional Buy-and-Hold (B&H) strategy. This was demonstrated by applying identified trading rules based on technical indicators from November 1, 1988, to May 1, 2017. This finding suggests that TA can be a valuable tool, even after considering risk and transaction costs, challenging the Efficient Market Hypothesis (EMH) in this context.

What is the Efficient Market Hypothesis (EMH) and how does technical analysis challenge it?

The Efficient Market Hypothesis (EMH) suggests that all available information is already reflected in asset prices, making it impossible to consistently outperform the market through methods like technical analysis. However, the study using the MSCI Emerging Market Index (EMI) found that technical analysis could, in fact, provide an edge, thereby challenging the EMH. This suggests that in emerging markets, inefficiencies may exist, and TA can exploit these to generate superior returns than passive B&H.

What factors should investors consider before using technical analysis in emerging markets?

Investors should consider their individual risk tolerance, investment goals, and willingness to actively manage their portfolio before using technical analysis. While TA offers the potential to enhance returns in markets like the MSCI Emerging Market Index (EMI), it's essential to understand its limitations and use it as part of a well-rounded investment strategy. Remember that emerging markets involve a higher degree of risk, and no investment strategy guarantees profits. The use of indicators like Moving Average (MA), Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and Rate of Change (ROC) should be part of a broader investment strategy, not a standalone approach.