- Two largest emerging markets ETFs – Vanguard’s VWO and iShares’ EEM – each down 6%
- China slowdown is fueling the lower commodity prices
- Emerging markets appear inexpensive because earnings growth is contracting with little sign of rebounding in the near-term
The Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the two largest emerging markets ETFs by assets, are each down about 6% this year and both are still coping with lost assets. However, some market observers believe it might finally be time for investors to revisit developing economies.
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]
Some market observers acknowledge emerging markets appear inexpensive because earnings growth is contracting with little sign of rebounding in the near-term.
India, Asia’s third-largest economy, is widely believed to be one of the sturdier emerging markets, but U.S.-listed ETFs tracking Indian stocks have struggled over the past year. Over the short-term, India has benefited from cheap energy prices as the country is one of the largest importers of crude oil. Looking further out, economic reforms, including more business-friendly and growth-oriented policies, could help support growth over the medium-term.
“Institute of International Finance senior Economist, Robin Koepke, and research Analyst Scott Farnham, write that a central bank-induced a surge in fund flows early in the month, and at the beginning and end of the month, oil prices rebounded, equity prices rose, and measures of volatility moderated. Overall, the trends look positive,” reports Dimitra DeFotis for Barron’s.
After the extended rout in Brazilian equities, Mark Mobius, chairman of the emerging markets group at Franklin Templeton, raised his position in this Latin American market, arguing that the developing markets could outperform their developed counterparts as the weaker currency bolsters exports, Bloomberg reports.