Even with Tuesday’s rallies, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), two largest emerging markets exchange traded funds by assets, are each lower by nearly 11% over the past month. Some traders see the struggles continuing for emerging markets equities and ETFs.
Investors yanked over $2.12 billion out of U.S.-listed emerging market ETFs in the week ended January 15, with China and Hong-Kong ETFs leading the losses, reports Kenneth Kohn for Bloomberg. Stock funds lost $1.89 billion while bond funds shrunk by $234 million. Year-to-date, investors have redeemed $2.69 billion from emerging market ETFs.
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]
“Todd Gordon of TradingAnalysis.com attributed the recent plunge in the S&P 500 to turmoil in emerging markets. In turn, emerging markets have been driven by the decline in crude oil, he said,” reports CNBC.
Some market observers acknowledge emerging markets appear inexpensive because earnings growth is contracting with little sign of rebounding in the near-term.