The strong dollar, political volatility in Brazil, trade wars with China and chaos in Turkey are among the factors punishing emerging markets assets this year. Year-to-date, the widely followed MSCI Emerging Markets Index is lower by 12.50%.
Some investors are not waiting around to see what’s next for developing economies. This year, investors have yanked $5.12 billion from the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which tries to reflect the performance of the benchmark MSCI Emerging Markets Index. Only three US-listed ETFs have seen larger year-to-date outflows.
“Economies as varied as Argentina, Russia, South Africa and Turkey are facing the maelstrom, but each has its own reasons for falling out of favor, and the turmoil has yet to raise anxiety about the world’s biggest economies and markets,” reports The New York Times.
Some single-country emerging markets exchange traded funds are feeling investors’ wrath, too. For example, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) has bled $1.09 billion in the third quarter. Only two ETFs have larger third-quarter outflows.
Despite the difficulty in predicting the next president, there are still constructive drivers that should benefit stocks over the next few months. For instance, J.P. Morgan expects Brazil to post the best corporate earnings growth in 2018 among Latin American peers. Additionally, a number of its industries are linked to commodities, which benefit from a weaker real currency.
Turkey has been a significant drag on emerging markets this year and the iShares MSCI Turkey ETF (NasdaqGM: TUR) is one of this year’s worst-performing emerging markets exchange traded funds.