After pulling billions out of emerging market exchange traded funds, investors are getting over the knee-jerk reaction to an end to easy money and are now looking toward the long-term growth play.
“We’re through the worst of the crisis but it doesn’t mean individual countries won’t continue to suffer significant challenges,” Steve Ashley, head of global markets at Nomura, said in a Bloomberg article. “We remain relatively positive on the longer term performance of risk assets in Asian emerging markets.”
Ashley predicts “very positive” Asian emerging market growth over the next five to 10 years. The International Monetary Fund in July projected that economies in emerging Asia will grow 6.9% in 2013, compared to 1.7% for the U.S. [Philippines ETF Breaks Out of Slump on Robust GDP]
“The market shouldn’t be frightened of normalization,” Ashley added. “The first half of the tightening cycle is normally accompanied with reasonable economic growth and reasonable performance by risk assets. It’s only toward the end of the tightening cycle that you see a tail-off in risk asset performance.”
So far this year, investors have been dumping emerging market assets, anticipating an end to the Fed’s accommodative measures. The iShares MSCI Emerging Markets ETF (NYSEArca: EEM) is down 13.2% year-to-date and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) has declined 14.0%. [Emerging Markets ETFs Stung by Outflows]
Emerging markets with high current-account deficits have taken the brunt of the recent sell-off – countries with current-account deficits witnessed quickly depreciating currencies. [Indonesia ETFs Lead Global Sell-Off]