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

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

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Jordan Keane in Business & Economy April 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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