Emerging markets (EEM), particularly countries such as Russia (RSX) and Brazil (EWZ), have been trading near four-year lows, causing them to display classic fundamental signs of undervaluation.

Michel Gayed has recently written a very intelligent article about the historical disparity of SPY and EEM: 1998, where are you?

Generally, the greatest and most irrational disparities lead to the most substantial profits. The bottoming pattern for many commodity-related subsectors, at deep lows during the second quarter of 2013, is likely to be followed by an important reappearance of inflation around the world. This will greatly favor those emerging markets that respond most positively to reflationary behavior, specifically commodity producing ones.

Historically, the end of a bull run in mature industrial markets, particularly the U.S., is followed by a rally in emerging market stocks. The rally will be more pronounced in countries heavily weighted in agriculture, energy and mining.

We believe that we are more closely approaching the next strong rally phase for commodity producers and emerging-market equities. The acceleration of the uptrends for these cyclical assets will occur whenever high-dividend assets firmly establish their downtrends and thereby induce momentum players and institutional investors to switch from utilities, consumer staples, REITs, telecommunications, and health-care names into the shares of commodity producers (which have a positive correlation with emerging countries). This switch should strongly benefit the general emerging market ETF called EEM.