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The past decade has seen the S&P/TSX composite closely track the performance of emerging markets equities, once currency effects are accounted for. In recent months this has changed, however, as developing world markets have left domestic equities in the dust.

The first chart below highlights the close association between the S&P/TSX composite index and the Canadian dollar value of the MSCI emerging markets index. The two lines on the chart barely diverged from February, 2008 to the end of June, 2017. From July, 2017 on, the loonie-denominated value of emerging market equities jumped 19.7 per cent while the domestic benchmark eased higher by seven per cent.

In the past, the TSX's hefty weighting in commodity stocks – materials and energy companies make up about 30 per cent of the index – explained the relationship between domestic and emerging markets stocks. Economic growth for developing countries, particularly China, is resource-intensive.

Relative to the G-7 nations, each unit of developing-world GDP growth requires more commodity consumption. So when emerging economies are growing well, resource prices and demand climb, boosting Canadian stocks in these sectors.

One explanation as to why domestic stocks haven't been following emerging market equities higher is the increasing dominance of technology companies in the developing world benchmark. Information technology stocks made up 27.7 per cent of the MSCI index at the end of 2017. The four largest stock positions in the benchmark, making up 16.9 per cent of total assets, are tech stocks: Tencent Holdings, Samsung Electronics Co., Alibaba Group Holdings and Taiwan Semiconductor.

The S&P/TSX composite has a meagre 3.2 per cent weighting in technology stocks. So to the extent technology companies have been driving the emerging markets higher – the index's top position, Tencent Holdings, is up 60.2 per cent since June 30 in Canadian dollar terms – the Canadian benchmark can't keep up.

The outperformance by developing world stocks has been exacerbated by domestic energy stock prices, which have yet to fully share in the benefits of the higher crude price.

The second chart below compares the value of $10,000 invested in the S&P/TSX energy index with a $10,000 investment in the FTSE global energy index. For most of the past three years, global and domestic energy stocks were affected equally by market conditions.

Beginning in November 2017, global energy stocks started leaving their Canadian counterparts in the dust, thanks in large part to transportation bottlenecks. Between Nov. 17 and Friday's close, the S&P/TSX energy index has appreciated by less than 1 per cent, while the global index is up 13.8 per cent.

Domestic energy stocks used to be a sector that benefited from strong emerging markets growth through higher oil prices. This helped explain the high degree of correlation between Canadian and developing world stocks. Domestic energy stocks are now lagging.

Canadian investors have been largely saved from the asset allocation decision as to whether to invest in emerging market stocks. If the TSX was going to do roughly the same thing, why bother? But as long as current trends last, things have changed and investors might have some new decisions to make.

Scott Barlow, Globe Investor's in-house market strategist, writes exclusively for our subscribers at Inside the Market online.