With the widely followed MSCI Emerging Markets Index down more than 17% year-to-date, a popular call late in 2018 has been forecasting a 2019 rebound for emerging markets equities. Should that theme materialize, it would benefit a slew of exchange traded funds, such as the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG).
Still, IEMG has been a prolific asset gatherer this year and various data points indicate investors should not overlooked emerging markets heading into 2019.
Emerging markets stocks and the related exchange traded funds have been among the most obvious laggards this year, but recent data points indicate traders are buying some marquee ETFs tracking developing economies. After the recent pullback in the equities market, bargain hunters may look to beleaguered emerging market stocks and region-related ETFs for value. Indeed, there is a value proposition to be had with emerging market stocks.
“Investors dumped shares of emerging markets while the Federal Reserve raised interest rates and as a trade war between the U.S. and China picked up steam,” reports CNBC. “However, a potential slowdown in Fed policy-tightening, a possible resolution to the U.S.-China trade war and valuations at multi-year lows could bolster these shares in the new year.”
New Year, New Look?
While the majority of investors might be driven away by the red prices in emerging markets, some market observers believe they should be looked at as substantial markdowns, especially if trade negotiations between the U.S. and China result into something materially positive–that’s what emerging markets bettors are essentially banking on.
“A slowdown in Fed tightening, and even more so a reversal in policy, would give emerging markets a boost. Looser monetary policy from the Fed usually leads to lower rates and a weaker dollar, both of which can boost emerging-market exports to the U.S.,” according to CNBC.
Compelling valuations could lure investors back to emerging markets equities and the related ETFs.
“While this year’s plunge may have been painful for emerging-market investors, it did make EM stocks far more attractive on a valuation basis. This year’s losses pushed the EEM’s price-to-earnings ratio — a widely followed valuation metric — down to 11.41, its lowest since February 2016,” reports CNBC.
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