An Endorsement for Emerging Markets Over Europe

Emerging markets equities and exchange traded funds have been pleasant surprises for investors this year. Just look at the returns delivered by the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the two largest emerging markets exchange traded funds by assets.

Conversely, even amid massive monetary stimulus efforts, European stocks and ETFs have dissapointed. A weaker dollar and a Federal Reserve that appears increasingly patient regarding interest rate hikes are bolstering the case for emerging markets.

A weaker dollar also makes it easier for developing economies to service debt, which many governments have denominated in U.S. dollars. Moreover, a depreciating greenback has helped support prices for raw materials, such as oil and metals, which are among some large exports of many developing countries.


Some professional investors are voicing a preference for emerging markets over Europe.

“Instead, investors looking for yield should turn to emerging markets,” Peter Boockvar, chief market analyst at The Lindsey Group, said in an interview with CNBC, naming Brazil in particular. Many emerging markets have already had four to five years of a bear market, he said, and the commodities space has also had a five-year bear market.”

Brazil ETFs, including the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), are among this year’s best-performing single-country emerging markets ETFs. However, with the U.S. dollar looking poised to rebound, Brazilian stocks could be vulnerable to some near-term upside. Additionally, data out of Latin America’s largest economy is far from encouraging, which could prompt investors to take profits in Brazilian equities and the corresponding ETFs.