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.
“Taking a look at the chart, you’ll notice that the price recently failed to break above the key resistance of its 50-day moving average. In technical analysis, it is not uncommon to see a bounce off of a key level of resistance and this level is used by many bearish traders for determining the placement of their stop-loss orders. To make matters worse for the bulls, you’ll also find that the 50-day moving average recently crossed below its 200-day moving average,” according to Investopedia.
According to a monthly fund manager survey from Bank of America Merrill Lynch, exposure to emerging market stocks remained at a record low, reports Dhara Ranasinghe for CNBC. EEM has a 11.3 P/E and a 1.3 P/B. In contrast, the S&P 500 is trading at a 17.5 P/E and a 2.4 P/B. [Emerging Markets ETFs Keep Bleeding Assets]
iShares MSCI Emerging Markets ETF
Tom Lydon’s clients own shares of EEM.