Emerging market and related ETFs have been falling behind, especially when compared to the rally in U.S. equities, but these developing markets could take charge in the year ahead.
Emerging market are “really taking leadership in the world,” especially in technology, Peter Gillespie, managing director at Lazard Asset Management, told ThinkAdvisor.
Gillespie pointed out that in countries like China and South Korea, most of these places don’t take cash or credit anymore where transactions are conducted via mobile phone app.
“It can be difficult to pay for things as simple as a cup of coffee [if you don’t have the app],” Gillespie said, adding that the adoption of digital devices is has made those countries leaders in the area.
Consequently, he argued for growth in several types of business and product platforms. “But going forward, most likely those players will be coming out of the emerging markets,” he added.
JPMorgan also highlighted “pockets of opportunity,” adding that “with the global economy stabilizing and trade escalation less likely, EM equity performance should be positive in absolute terms as these confidence variables add a bit to returns.”
Emerging market investors need to focus on long term
JPMorgan projects double-digit growth, but also warned that investor confidence is necessary in the short term due to foreign exchange risks, so emerging market investors need to focus on the long term.
“Many U.S. investors remain extremely underweight EM equities, increasing the importance of considering adding to this asset class as a way of boosting returns,” JPMorgan said.
Gillespie also mirrors this sentiment. “The emerging market has changed as an asset class over the last 10, 15 years or so,” he said. “It has moved from an index that was sort of dominated more by the materials/commodity space and [now]is more into technology and innovation. I argue for a greater exposure to emerging markets and people applications, and maybe viewing them as more of a secular holding as opposed to an opportunist or tactical one.”
ETF investors have a number of ways to access the emerging markets. For example, broad strategies like the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) and Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) have been cheap and easy ways to access developing economies. Investors can also look to smart beta strategies like the Schwab Fundamental Emerging Markets Large Company ETF (NYSEARCA: FNDE) and the Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM) to access alternative index-based methodologies that emphasis strong fundamentals or quality company holdings.
For more information on global markets, visit our global ETFs category.