Emerging market stocks and exchange traded funds took a hit in 2011, as it was one of the worst-performing asset classes this year. Inflation worries and a slowdown in global growth have led to a battered sector that some investors are now eying.
“Valuations in emerging markets (as measured by the MSCI Emerging Markets Index) are near 10-year lows, excluding 2008, which reflects slowing GDP growth rates and manufacturing activity. Most emerging market countries have more leeway to adjust their monetary and fiscal policies to support growth, and inflation risks have ebbed since earlier this year,” Patricia Oey for Morningstar wrote.
What has changed in favor of emerging markets is the speculation on inflation in the U.S. and the fact that the Federal Reserve does not have means for further policy easing. Investors are beginning to venture back into the market for growth prospects and the risks that were posed to emerging markets don’t appear severe.
The wild card still remains what impact the Eurozone will have upon global markets in the future. Overall sentiment toward the Eurozone debt crisis remains negative, and if it becomes worse, the effect on emerging market stocks will have greater impact than that of developed nations, says Oey. [Emerging Markets ETFs Submerged in Risk-Off Trend]
Standard & Poor’s recently warned it may cut the ratings of major Eurozone economies.