Emerging markets equities and exchange traded funds were among the asset classes seen as highly vulnerable to Donald Trump winning November’s U.S. presidential election and the immediate reaction by many ETFs tracking developing economies to Trump’s victory was not encouraging.
Good news: The “Trump slump” experienced by some emerging markets ETFs is waning and some of these funds are within striking distance of new 52-week highs. That includes the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and other diversified emerging markets ETFs.
VWO and EEM are the two largest emerging markets ETFs by assets and both are up more than 6% year-to-date. In fact, several smaller emerging markets ETFs hit 52-week highs on Wednesday.
“Emerging-market currencies, bonds and shares fell sharply on Mr Trump’s November election victory, as investors anticipated rising US interest rates, a stronger dollar and more barriers to trade,” reports the Wall Street Journal. “Many investors now believe that the worst is priced in. They are, instead, focusing on the benefits for developing countries of strong global growth, near-record low valuations and rising commodity prices.”
The rising dollar is potentially problematic for emerging stocks, but there are ways to handle that. For example, investors may also turn to currency-hedged EM strategies like the Deutsche X-trackers MSCI Emerging Markets Hedged Equity Fund (NYSEArca: DBEM), which targets the emerging markets but includes currency swaps to mitigate the negative effects of a stronger USD or depreciating emerging currencies.