Emerging market stocks and related exchange traded funds have been a punching bag for global investors this year, but the the battered market segment may provide an attractive entry point for investors with a more long-term horizon.
“We’re constructive on EM equities, but this year is a sober reminder of the risks of EM investing. We remain positive toward EM as valuations have cheapened this year, positioning remains light, and earnings growth remains strong,” Christopher Dhanraj, Director and Head of iShares Investment Strategy, said in a research note.
Dhanraj also argued that the lack of investor positioning across emerging markets may be interpreted as a positive once risk appetite stabilizes and investors return. Nevertheless, investors should remain mindful that trade tensions will likely persist and represent a key source of uncertainty.
Investors who are interested in gaining exposure to the developing economies have turned to ETF options like the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG). IEMG, the second largest emerging-markets ETF, also recorded a fifth straight week of inflows as investors looked for cheap areas of the global market after the recent selling pressure.
Among emerging market plays, BlackRock sees the greatest opportunity in Asian emerging markets. Macroeconomic fundamentals, such as growth, inflation trends, debt ratios and current accounts, are look more attractive in emerging Asia. Asian economies are also less vulnerable to a strengthening U.S. dollar, which remains one of the main risks for emerging market exposure.
ETF investors can track emerging Asian economies through a more target option like the iShares MSCI Emerging Markets Asia ETF (NYSEArca: EEMA), which track Asian countries including China, Malaysia, Indonesia, Singapore, Thailand, Philippines, India and South Korea.
If you are still wary of further risk down the road, one may consider a low-volatility strategy as well.
“Investors may want to consider a minimum volatility strategy, which historically has provided some buffer during sell-offs,” Dhanraj said.
“For investors who wish to maintain some upside participation while seeking to minimize downside exposure, we believe the min vol factor can serve an important role across portfolios,” he added.
The iShares MSCI Emerging Markets Minimum Volatility ETF (Cboe: EEMV) is a low-vol variant on the widely observed MSCI Emerging Market Index and is a solid option for investors looking for a volatility-reducing strategy that provides exposure to resurgent developing world stocks. Investors considering EEMV should note that is fund, like other low volatility ETFs, focuses more more slow and stable companies, the low volatility strategy may underperform more growth-oriented stocks if the markets turn around.
For more information on global markets, visit our global ETFs category.