As the European Central Bank turns on its printing press, emerging market assets and related exchange traded funds could sop up all the excess liquidity.
Emerging market ETFs, like the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and iShares MSCI Emerging Markets ETF (NYSEArca: EEM), could capitalize on another round of easy money. Year-to-date, VWO has increased 2.6% while EEM rose 2.8%.
In response to the ECB turning on its liquidity spigot, Societe Generale has stated that emerging markets could experience a “pretty robust rally,” and Aberdeen Asset Management argues that it is “hard not to be bullish,” Bloomberg reports.
Specifically, Societe Generale believes that with euros flooding the markets, investors now have a cheap way to fund higher-yielding currencies like the Indian rupee, Turkish lira and South African rand, which would bolster these respective markets.
ETF investors can also gain targeted exposure to these markets through country-specific ETFs. For instance, the WisdomTree Indian Rupee Strategy Fund (NYSEArca: ICN) provides access to Indian rupee currency movements and the iShares MSCI India ET (NYSEArca: INDA) allows investors to access India’s equities market moves. Additionally, investors can take a look at the iShares MSCI South Africa ETF (NYSEArca: EZA) for South Africa exposure and iShares MSCI Turkey ETF (NYSEArca: TUR) to track Turkish markets.
Fixed-income investors may also fuel a rally in emerging market debt as more European investors turn to overseas markets for attractive yield options. The two-year German bund has a yield of record low negative 0.2%, whereas the emerging market local-currency bonds have an average 6.1% yield. [Bearish Bets Rise on EMB Bond ETF]