While developed markets languished, investors turned to emerging markets and related exchange traded funds for a cheaper play on global markets.
Emerging equities are outperforming developed markets. Year-to-date, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) rose 1.1% and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) increased 1.6%, whereas the e SPDR S&P 500 ETF (NYSEArca: SPY) dipped 1.8%.
According to the Institute of International Finance, investors funneled $18 billion into emerging market stocks and bonds over January, reports Carolyn Cui for the Wall Street Journal.
While EEM and VWO experienced heavy outflows, some areas drew heavy inflows. For instance, the iShares MSCI India ET (NYSEArca: INDA) added $617.2 million in assets, iShares MSCI Taiwan ETF (NYSEArca: EWT) saw $172.0 million in inflows and the Market Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC) experienced $148.4 million in inflows, according to ETF.com data. [Shrinkage for a Popular Emerging Markets ETF]
As the developed markets stumbled at the start of the new year, investors turned to other global opportunities that could generate improved returns, following the rally in developed-market equities and fixed-income assets last year.
“Emerging markets are one of the few bargains out there in an increasingly expensive world,” Jeffrey Kleintop, chief global investment strategist at Charles Schwab Corp., said in the article, arguing that the low valuations could provide “some sort of buffer” when volatility spikes.
For instance, EEM shows a price-to-earnings ratio of 12.1 and a price-to-book of 1.5, VWO has a 12.3 P/E and a 1.6 P/B. In contrast, SPY shows a 17.3 P/E and a 2.5 P/B.