With Federal Reserve interest rate expectations muted after the weak August jobs data, emerging market exchange traded funds rebounded in response to investors’ continued search for yield.
The iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) both rose 1.3% on Friday after dipping 0.7% and 0.6% over the past week, respectively. Investors have been trimming emerging market exposure over the past week on bets that the Federal Reserve would hike interest rates as soon as September, following the hawkish comments by Federal Reserve policymakers.
However, the emerging markets pushed higher Friday after the Labor Department revealed nonfarm payrolls rose by 151,000 in August, compared to expectations of a 180,000 addition, diminishing the prospects of a Fed rate hike anytime soon.[related_stories]
“While the report is solid,” Quincy Krosby, Market Strategist at Prudential Financial, told the Wall Street Journal. “It falls short of providing a resounding vote for a September move by the Fed.”
The muted employment data helped support the emerging markets, pushing investors toward higher yielding but riskier assets.
“It now seems less likely that there will be an interest rate hike in September, so people will be looking for yield in emerging markets,” Cratos Capital equities trader Greg Davies told Reuters.
Leading the charge among the developing economies, the iShares MSCI South Africa ETF (NYSEArca: EZA) increased 2.5% on Friday.
South African markets were also rallying after experiencing a steep sell-off in response to ongoing political risks, with EZA down 7.1% over the past month. South African assets have been pressured by an investigation into whether Finance Minister Pravin Gordhan used a surveillance unit to spy on politicians when he was head of the tax service.
For more information on the developing economies, visit our emerging markets category.
iShares MSCI Emerging Markets ETF