Emerging market exchange traded funds have been among the least loved assets this year as foreign investment in developing economies dipped to the lowest level since the financial downturn.
Year-to-date, 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, experienced net outflows of close to $2.6 billion and $7.0 billion, respectively, according to ETF.com.
Investors have been dumping the asset as emerging markets experienced one of their worst years, with VWO and EEM both down over 19% year-to-date. [Signs of Life From Beaten Down ETF Asset Class]
Developing market equities could seen more pain ahead as the U.S. Federal Reserve readies its first interest rate hike in almost a decade. After years of growth fueled by cheap money and an end to a commodities super-cycle, economists at the Bank of International Settlements warned of negative spillovers with higher borrowing costs, reports Elaine Moore for the Financial Times.
So far, emerging market equity and debt benchmarks have fallen off as net inflows from overseas investors dipped from $285 billion in 2014 to $66 billion this year.
“This has been a miserable year for EM,” Paul McNamara, investment director of emerging markets at GAM, told the Financial Times. “There has been a steady bleed out of assets and no one is certain what shape the market might be in this time next week.”
The Fed rate hike, though, is only one factor weighing on the emerging markets group. For instance, falling oil prices has hurt energy exporters, such as Russia and Brazil, while a slowdown in China has contributed to market volatility, notably in late summer. [The Russian Benchmark Index Peaks, Will Russia ETFs Soar?]
“Even if you have made your peace with a Fed rate rise there are other reasons to be nervous,” David Hauner, head of emerging markets at Bank of America Merrill Lynch, told the Financial Times. [China ETFs’ Worst Stumble Since August]
Vanguard FTSE Emerging Markets ETF
For more information on the developing markets, visit our emerging markets category.
Max Chen contributed to this article.