The Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the two largest emerging markets exchange traded funds by assets, have been riddled with outflows this year, a trend that started changing for the better in the third quarter.
However, inflows to emerging markets ETFs turned into outflows last week. Some fund managers believe it will be a while before emerging markets stocks recover in earnest. Investors pulled out of riskier emerging markets as data showed growth from China’s economy slowed, commodity prices fell and the Federal Reserve signaled an interest rate hike this year. The China slowdown is fueling the lower commodity prices and lower outlook for other major emerging economies. Moreover, rising borrowing costs, a stronger dollar and rising corporate debt loads, with the International Monetary Fund warning of corporate defaults, are adding to volatility. [Area Emerging Market ETF Investors Must Monitor]
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]
“Redemptions from emerging-market ETFs that invest across developing nations as well as those that target specific countries totaled $91.3 million compared with inflows of $1.1 billion in the previous week and $2.58 billion in the past three periods, according to data compiled by Bloomberg,” reports Ken Kohn for Bloomberg.
As Bloomberg reports, last week was the first week of net outflows for major emerging markets ETFs since early October.
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]