ETFs tracking Indonesia and India are the worst performers in emerging markets this month as investors position for the Federal Reserve to begin withdrawing its economic stimulus.
The iShares MSCI Indonesia (NYSEArca: EIDO) and iPath MSCI India Index ETN (NYSEArca: INP) are down 22.9% and 18.8%, respectively, for the trailing month, according to Morningstar performance data.
The damage is being compounded by losses in emerging market currencies. For example, the Indian rupee fell to a new all-time low against the U.S. dollar this week.
“The rupee is now down approximately 30% against the U.S. dollar since the start of May 2013,” said Charles Rotblut, editor of the AAII Journal.
“One of the catalysts for the downward pressure on emerging market stocks is the rising interest rates in the U.S. Expectations for a tapering of bond purchases by the Federal Reserve that has led to speculation of a shift in investment capital away from emerging markets and into the U.S. At the very least, the thinking goes, if the Federal Reserve starts to tighten the spigot on monetary stimulus, there will be less cheap capital available to invest globally,” he wrote.
iPath MSCI India Index ETN