ETF Trends
ETF Trends
  • Previously downtrodden emerging markets ETFs VWO and EEM are up an average of 11.1% over the past month
  • Investors pulled out of riskier emerging markets as data showed growth from China’s economy slowed
  • It appears some investors still need some convincing regarding the veracity of the emerging markets rally as EEM and VWO have

On the back of rebounding commodities prices, 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 up an average of 11.1% over the past month.

That is an impressive move for the previously downtrodden VWO and EEM, one that has some market observers questioning whether or not emerging markets equities, after years of lagging returns, have notched a legitimate bottom.

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.

Reviews are mixed regarding how much more upside emerging markets stocks and ETFs have to offer the near-term.

“All EM financial assets are risk assets, so a sea change in both equities and bonds would at some point also require EM FX to turn the corner. The problem is that EM FX has become highly sensitive to moves  in the yuan. With Beijing speared by the impossible trinity in the face of persistent capital outflows, the outlook for CNY is skewed to the downside and the risk of a one-off devaluation is far from negligible. Investors have also (wrongly) tended to directly associate a weaker CNY with lower oil prices – even though the collapse in crude has been basically a supply-side story. Evidence of a sustained recovery in global growth will eventually sunder the tight correlation between EM FX, CNY and oil; but until then, moves in crude prices should continue to hold sway over EM sentiment,” according to a Lombard Street research note posted by Teresa Rivas of Barron’s.

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