Following the Federal Reserve’s decision to keep its zero interest rate policy in place, much maligned emerging markets exchange traded funds received some relief in terms of a respite from lost assets.
According to the Institute of International Finance, cross-border portfolios flows to emerging markets “turned around sharply” both before and after the Fed’s decision to leave rates unchanged last week, reports Jonathan Wheatley for the Financial Times.
IIF revealed that last week’s inflows marked a reversal after 35 days of outflows from emerging market funds. The institute also said that flows turned positive early last week ahead of the Fed announcement, which reflected increased anticipation of a delayed Fed rate hike.
ETF investors were also jumping back into the developing markets. Emerging markets, which previously saw heightened outflows on concerns of a higher interest rate, bounced back as an environment of easy money would help fuel riskier trades.
For instance, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which tracks the MSCI Emerging Markets Index, was the second most popular ETF over the past week, attracting $1.0 billion in net inflows, according to ETF.com. EEM, though, has experienced $6.3 billion in outflows so far this year.
Still, EEM, the second-largest emerging markets ETF by assets, and rival emerging markets ETFs face an array of fundamental and technical challenges. Focusing on the latter set of challenges highlights a murky near-term outlook for developing world equities.