ETF Trends
ETF Trends

Worries over slowing economic growth in China are weighing on emerging market ETFs, which many financial pundits predicted would outperform developed countries in 2012.

Direct investment into China fell for a fifth month, raising concern weaker growth in the world’s second-largest economy may weigh on riskier assets, Bloomberg News reports.

Vanguard MSCI Emerging Markets (NYSEArca: VWO) and iShares MSCI Emerging Markets (NYSEArca: EEM) are down about 4% the past month, although they are outperforming the S&P 500 year to date thanks to a strong start.

China is the largest country allocation in EEM at 17.5% of the portfolio.

“We have seen a structural decline in the growth rate in China,” said Clive McDonnell, head of emerging-market equity strategy for Standard Chartered, in the Bloomberg story. For emerging-market assets, “the optimism that was in place there during the first quarter has ebbed.”

Companies in the MSCI Emerging Market Index are trading at 10.4 times estimated earnings, cheaper than the 12.5 multiple of the developed-nation counterpart, according to the article. [Emerging Market ETFs Capture the Next ‘Engine of Growth’]

Vanguard MSCI Emerging Markets

Full disclosure: Tom Lydon’s clients own EEM.

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