Emerging markets are finally outperforming developed markets.
Those interested in the developing economies should keep in mind that growth is uneven across the broad asset class, but investors can utilize country- or region-specific exchange traded funds to target more promising areas.
The emerging markets continue to enjoy favor fundamentals from weaker currencies, recent stability in commodities, growing economies and positive current accounts and fiscal balances, along with policy changes and structural reforms across a number of countries, BlackRock Strategists Heidi Richardson and Maria Eugenia Heyaca said in a research note.
“This has helped translate into improved earnings revisions,” the BlackRock strategists said. “We think global GDP growth has the potential to surprise on the upside in coming months, which should be positive for trade and emerging market.”
Asian markets in particular may benefit from the current favorable environment.
“Macroeconomic fundamentals, including growth momentum, inflation trends, debt ratios and current accounts, are generally more favorable in emerging Asia than other EMs,” the strategists added. “As mainly net commodity importers and with lower external debt ratios, Asian economies are less vulnerable to a strengthening U.S. dollar, which remains one of the main risks to the outlook for emerging markets.”
The BlackRock strategists argued that three countries could be compelling opportunities, including India, Indonesia and China.
[related_stories]The iShares MSCI India ETF (BATS: INDA), PowerShares India Portfolio (NYSEArca: PIN) and WisdomTree India Earnings ETF (NYSE: EPI) are among the most popular India ETFs. The Indian markets could enjoy continued strength as reform progress continues, inflation remains contained and improved company earnings on increased government spending.
Investors interested in Indonesia can look to the iShares MSCI Indonesia ETF (NYSEArca: EIDO) and Market Vectors Indonesia Index ETF (NYSEArca: IDX). The improving domestic consumption, government capital spending and further structural reforms, along with potentially loose monetary policies, could help support the Indonesian market.
Looking at China ETF options, the iShares China Large-Cap ETF (NYSEArca: FXI) and SPDR S&P China ETF (NYSEArca: GXC) both track Chinese companies listed on the Hong Kong stock exchange. Additionally, investors can use China A-shares ETFs that track mainland Chinese stocks traded in Shanghai and Shenzhen plunged Friday, with the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR). The Chinese economy has been stabilizing as the government helps support growth.
Alternatively, investors who want a more diversified approach can consider broader region-specific ETF options, including the Global X FTSE ASEAN 40 ETF (NYSEArca: ASEA), SPDR S&P Emerging Asia Pacific ETF (NYSEArca: GMF) and iShares MSCI Emerging Markets Asia ETF (NYSEArca: EEMA), which track emerging Asian economies like China, Malaysia, Indonesia, Singapore, Thailand, Philippines, India and South Korea.
For more information on the developing economies, visit our emerging markets category.