Ever since the Brexit vote, emerging markets have taken center stage, but the various developing economies are not all the same. Investors, though, can take targeted exposure to certain markets through country-specific exchange traded funds.
The emerging market outlook has improved on signs of economic stabilization in China, recovering commodity prices and a depreciating U.S. dollar, according to BlackRock.
The recent United Kingdom referendum on leaving the European Union also strengthened expectations for a depressed U.S. dollar for longer as uncertainty in a post-Brexit environment diminished bets on a Federal Reserve interest rate hike any time soon.
[related_stories]Moreover, valuations remain attractive, and BlackRock anticipates further potential upside. However, the money manager advised investors to look to emerging markets that may benefit from the long-term picture.
“We remain neutral overall towards emerging markets, but look for specific longer-term opportunities,” BlackRock said. “Take Mexico, for example. It is closely connected to the U.S., which is still the strongest performing developed economy and whose manufacturing sector has stubbornly remained in expansion this year. A rebound in oil prices and the U.S. dollar weakness are also positive for Mexican assets.”
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ETF investors can also gain exposure to the Mexican markets through the iShares MSCI Mexico Capped ETF (NYSEArca: EWW), which holds broad range of companies in Mexico, and SPDR MSCI Mexico Quality Mix ETF (NYSEArca: QMEX), which tracks a more customized basket of Mexico stocks that were selected based on metrics like value, quality and low volatility. Year-to-date, EWW was up 0.5% and QMEX was 1.3% higher.
Additionally, BlackRock advises investors to consider India as a potential long-term play as policy progress and a turn in the credit cycle coudl further support fundamentals.
“India is another emerging market that we find attractive for long-term investors,” BlackRock said. “The country continues to be one of the growth bright spots in emerging markets with a recovery that is broadening out to most of the economy. In addition to benefiting from some of the same forces affecting emerging markets overall, the weakness in oil prices has been a boon for India over the past two years and allowed for significant adjustments to the inflation trend and external accounts.”
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For India exposure, investors can turn to a number of country-specific ETFs, including iShares MSCI India ETF (BATS: INDA), PowerShares India Portfolio (NYSEArca: PIN) and WisdomTree India Earnings ETF (NYSEArca: EPI). Year-to-date, INDA rose 7.8%, PIN gained 6.7% and EPI increased 8.3%.