Bulls are hoping emerging market ETFs aren’t getting ready to roll over on news that China’s economic growth has been stunted. The sector had just started to gain back favor and investors were dipping back into overseas markets, until this week.
“People’s hopes that there would be a strong cyclical rebound in emerging-market economies in the first half are being recalibrated to a more realistic setting,” Nick Chamie, head of emerging markets at RBC Capital Markets, said. “Emerging-market global growth conditions will continue to look lackluster and China and other major emerging-market commodity demand will likely be soft.” [Best Emerging Market ETFs]
Furthermore, as of late February, certain emerging market ETFs were showing signs of distress, and those are the funds that could fall further. The ETF Professor on Benzinga reports that the following ETFs are on high alert with possible double-digit losses:
- Market Vectors Egypt Index (NYSEArca: EGPT) The country does not report a GDP, and political risk is high and mounting higher. The fund gained almost 40% in the start of the year, another sign of future trouble. [These 5 ETFs May Be Overbought]
- Guggenheim China Small Cap ETF (NYSEArca: HAO) This ETF serves well when China is an investment hotspot, rather than the reason investors are fleeing emerging markets.
- Market Vectors Brazil Small Cap ETF (NYSEArca: BRF) Technical signs look weak for this fund, according to the ETF Professor, and the news that China is losing strength also means Brazil will follow in its footsteps. [ETF Spotlight: Brazil]
- First Trust ISE Chindia Index Fund (NYSEArca: FNI) Likewise, the news that China’s economy is anemic also spells bad news for India. The rupee is also weakening, which is not a good sign amid higher oil prices.
Emerging market equity valuations are at their cheapest level in three years in contrast to the developed world. Related stocks are trading 10.7 times their estimated earnings, taking the gap to developed country shares to its widest since February 18, 2009, reports Zachary Tracer for Bloomberg BusinessWeek.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.