Emerging market economies and their currencies have been playing a more important role in international finance markets. There are some characteristics of trading these currencies versus those of industrialized nations that individuals should price into their investments.
“In the past few years, emerging-markets equities and bonds have become a larger portion of investors’ portfolios. In 2011, the emerging-markets debt category had $15.8 billion in new assets this year. This demand is because of stronger economic growth in emerging markets compared with meager growth from the developed world,” Timothy Strauts for Morningstar wrote in an ETF analysis. [Investors Get More ETF Options For Emerging Market Bonds]
Before investing in emerging market currencies, it is necessary to understand that the banking and financial systems in these countries are still forming. A middle-class may have yet to be established, however, many of these economies do boast a growing middle class ranking. Political regime can greatly affect the currency market and have been known to completely freeze investing capital, reports Investopedia.
As of late, emerging market debt and currencies sold off on uncertainty over a second bailout for Greece. There was no parliamentary approval of the bailout plan. Prabha Natarajan for Dow Jones Newswire reports that the U.S. dollar gained on most major Latin American currencies, after sentiment weakened on China’s widened trade surplus. [ETF Spotlight: CurrencyShares Mexican Peso Trust]
Various emerging market currency ETFs include:
- iShares Emerging Markets Local Currency bond Fund (NYSEArca: LEMB)
- WisdomTree Emerging Markets Local Debt (NYSEArca: ELD)
- Wisdomtree Dreyfus Brazilian Real Fund ETF (NYSEArca: BZF)
- Rydex CurrencyShares Mexican Peso Trust ETF (NYSEArca: FXM)
- WisdomTree Dreyfus South African Rand Fund ETF (NYSEArca: SZR)
Tisha Guerrero contributed to this article.
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.