Series
What is this indicator?
This is the most violent ratio. It compares the cheapest major market (China, P/E ~9) to the most expensive (US, P/E ~24).
For this ratio to rise, Global Allocators (Pension funds, Sovereigns) must make a conscious decision to reduce US exposure and increase Emerging Market exposure.
This rarely happens based on earnings; it happens based on Geopolitics (e.g., US-China relations thawing) or Dollar Weakness (DXY down).
Hedge funds use it to spot "Peak Fear." When MCHI/SPY hits a multi-year low, it often signals that US optimism is maxed out and China pessimism is maxed out. Contrarians buy here for a "snap back" rally (which can be +20% in weeks, but as any market timing play is a very high risk move).