As investors shied away from riskier assets in the wake of the Brexit results, emerging market exchange traded funds were pummeled, dipping below their long-term trend lines.
The iShares MSCI Emerging Markets ETF (NYSEArca: EEM) fell 1.4% Monday and was trading below its 200-day simple moving average while the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) dropped 1.1% and was testing its long-term resistance as well.
The United Kingdom’s referendum on its European Union membership is causing ripple effects across the world, lifting safe havens and depressing riskier assets like the emerging markets.
For instance, in China, the yuan currency depreciated to its weakest against the U.S. dollar since late 2010, after The People’s of Bank of China weakened the yuan by the most since August, reports Georgi Kanthcev for the Wall Street Journal.
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China is the largest country-weight in the emerging market ETFs, accounting for 25.6% of EEM and 28.4% of VWO.
“Brexit has hit sentiment across the board and will have a quite strong impact on emerging markets for the next month or two, at least,” Richard Segal, emerging-market analyst at Manulife Asset Management, told the WSJ.
Analysts also warned that emerging Central and Eastern Europe are particularly vulnerable. For instance, U.K. is Poland’s third-biggest export destination and over half a million Poles live in Britain, many of whom send remittance back home. Poland makes up 1.2% of EEM’s portfolio and 1.4% of VWO.[related_stories]