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TSX no longer an emerging market index

The close relationship between developing-world equity markets and the S&P/TSX Composite index is beginning to break down. This is either a very good thing, or a sign of trouble ahead for domestic equities.

In September, the three-year correlation between the MSCI Emerging Markets index and the S&P/TSX Composite was extremely high, with an R-squared of 0.70. The chart below shows that the correlation is steadily breaking down – the R-squared is now below 50.