Outflows from emerging markets exchange traded funds are continue at a blistering pace as developing world equities contend with plunging currencies, slack commodities demand and stumbling stocks in China, the largest emerging market.
To this point in 2015, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) is the only emerging markets exchange traded fund among the 10 worst ETFs in terms of year-to-date outflows, but that data point barely scratches the surface of how much capital investors have pulled from emerging markets funds over the past year.
China’s currency devaluation is aimed at propping up exporters in the world’s second-largest economy amid slack economic data. Beijing revealed that exports declined 8.3% in July, the largest drop in four months and worse than the expected 1% dip. Exports to the Eurozone plunged 12.3% in July and shipments to the U.S. fell 1.3%. [Violent Turn for the Yuan]
“The yuan devaluation may signal that China’s efforts to rebalance its economy toward greater growth may be proving more challenging than anticipated. According to some estimates, the trade-weighted yuan has increased by over 11% in the past year, and exports have been falling sharply — down 9.2% in July. A weaker yuan may help turn growth around by boosting China’s exports, but a roughly 2% currency devaluation is only a small step toward that goal,” said Invesco in a recent research note.
China is the largest country in EEM and the rival Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO). VWO and EEM are the two largest emerging markets ETF by assets.
“As markets from China to South Africa tumbled, they pulled $2.7 billion out of developing economies on Aug. 24. That matches a Sept. 17, 2008 exodus during the week Lehman Brothers went under,” reports Elena Popina for Bloomberg.
Investors should look at the emerging market equities as a more cyclical asset. Currently, after years of outperformance in the developed markets, the emerging markets are beginning to show a lower premium to more developed countries. [Look to Emerging Market ETFs in the Second Half]
“Equity outflows from developing nations increased to $8.7 billion this month, the highest level since the taper tantrum of 2013 when the prospect of higher rates in the U.S., making riskier assets less attractive, first shook emerging markets,” according to Bloomberg.
Since July 2014, more than $1 trillion has been pulled from emerging markets stocks and funds, including mutual funds and ETFs.
iShares MSCI Emerging Markets ETF
