Emerging Market ETFs May Maintain Momentum into 2018

While emerging market ETFs can continue to maintain their momentum into the new year, the asset category may potentially experience more bumps along the way.

Investors, traders and strategists anticipate developing country bonds and equities to continue to outpace developed country peers into the next year, Bloomberg reports.

However, there are some speed bumps that could slow down the pace of gains among emerging market assets. For instance, while the Federal Reserve’s actions remain a key component in determining the outlook for emerging market stocks, investors will have to watch out for some smattering of geopolitical risks, potential policy changes under President Donald Trump and China, the world’s second largest economy.

“The environment for emerging markets was great in 2017 with the Goldilocks factors of economic growth and low inflation in industrialized countries,” Hideo Shimomura, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co., told Bloomberg. “The EM rally we saw this year will probably extend into 2018, but after a period of strong growth and low inflation, some adjustment will be inevitable.”

Market watchers continue to see the the Fed and President Trump policy moves as key drivers in the direction of emerging market assets. The Fed would affect monetary policy changes that could strengthen the U.S. dollar or weaken the appeal of emerging market currencies. Furthermore, Trump has voiced protectionist rhetoric that could affect the way the U.S. does business with its global peers.