Emerging market countries have had a disastrous year so far. As a group they peaked at the end of 2012 and have been mired in a persistent downtrend for the last 8 months.
Despite brief rallies, they have been unable to mount any positive or sustainable momentum. This underperformance is not only pervasive in stocks but also emerging market bonds and currencies as well.
This has led to investors fleeing ETFs and mutual funds tied to developing countries and exacerbating the selloff.
Emerging Market Stocks
According to Index Universe, the iShares MSCI Emerging Market ETF (EEM) and the Vanguard Emerging Market ETF (VWO) have lost nearly $12 billion combined this year.
That also puts them in the top 5 for all ETF outflows year-to-date. A quick comparison of EEM vs. the SPDR S&P 500 ETF (SPY) over the last 12 months shows why investors have been flocking to domestic stocks that are still in a stable uptrend.
Recently the international picture has grown even darker and investors have become spooked over fears that the U.S. will enter into a conflict with Syria. This will likely cap the upside potential of emerging market stocks in the near term. However, I am still looking at this region as a value play once we see some stability return.
Historically these countries have had periods of very strong growth and can be an excellent way to diversify your portfolio outside of the U.S. In addition, these up-and-coming economies offer many attractive qualities over developed markets, which can include: Lower debt burdens, solid economic prospects, high levels of natural resources and a burgeoning workforce.