Meanwhile, the initial sell-off in U.S. Treasuries and appreciation in the U.S. dollar are beginning to cool off, further supporting the emerging market trade.
Even without these short-term risk factors that may cause quick swings, emerging market fundamentals remain attractive. The EM segment could slowly improve from here on strengthening current account balances, rising commodity prices and growing middle-income base, among other fundamentals.
As part of a global economy, emerging markets will also experience indirect benefits from other economies, like the U.S. As the U.S. experiences growth through greater infrastructure spending, fiscal stimulus, higher wages and rising inflation, the developing countries can enjoy a boost in demand for their exported commodities.
Emerging market assets have already struggled and may be past their lowest point, which may open opportunities for long-term investors to get in at more attractive valuations.
Additionally, developing markets still offer attractive valuations after the multi-year rally in developed market stocks pushed valuations above historic averages. For example, IEMG is trading at a 11.55 price-to-earnings and a 1.34 price-to-book, whereas the S&P 500 Index is showing a 18.51 /E and 2.75 P/B.