International equities gained Thursday, with emerging markets and related exchange traded funds taking charge as updated Chinese economic growth data fueled expectations of more liquidity.
Chinese stocks, which make up the lion’s share of major emerging market benchmarks, rallied as investors looked to more liquidity measures from the People’s Bank of China, following second quarter economic growth that came in slightly slower than expected, Reuters reports.
The PBOC last week reduced reserve requirements for banks to release about 1 trillion yuan, or $154.64 billion, in liquidity.
However, Mitul Kotecha, chief EM Asia and Europe strategist at TD securities, argued that the reserve rate cut was a “targeted attempt to keep liquidity stable rather than a step towards policy easing.”
“We expect manufacturing activity to moderate further in the months ahead as trade slows, but services are likely to play catch up, especially retail spending, helping to mitigate the likely downturn in activity,” Kotecha told Reuters.
Emerging market assets may also be receiving a boost from risk-on investors after dovish comments from U.S. Federal Reserve Chair Jerome Powell. Powell on Wednesday reassured markets that the central bank would maintain its loose monetary policy outlook for the time being to support economic growth. The prospect of depressed U.S. interest rates helps support demand for high-yielding emerging market assets.
Investors who are interested in the emerging markets can look to ETF plays like the Avantis Emerging Markets Equity ETF (AVEM). AVEM is an actively managed emerging markets ETF that tries to outperform the MSCI Emerging Market IMI Index. The fund focuses on small cap companies with strong profits and low valuations in the emerging market space. The value metric is evaluated by a compound of value criteria, including price-to-book and price-to-cash-flow. Profitability is judged on operating profits.
Investors interested in broader international markets can also consider ETF strategies. For example, the Avantis International Equity ETF (AVDE) is built upon an academically-supported, market-tested framework to identify securities with expected high returns based on market prices and other company information. Relying on trading and portfolio management processes, the Avantis team analyzes whether the perceived benefits of a trade overcomes its associated costs and risk. AVDE primarily invests in a diverse group of companies of all market capitalizations across non-U.S. developed market countries, sectors, and industries, emphasizing investment in companies believed to have higher expected returns.
Additionally, the American Century Quality Diversified International ETF (NYSEArca: QINT) utilizes the American Century Investments Intelligent Beta methodology, which systematizes many of the same attributes that fundamental research and security selection seek to identify in a rules-based, indexed approach. QINT is a large foreign blend fund that seeks to enhance core international exposure. Its rules-based approach analyzes each stock’s quality, growth, and value characteristics to select individual securities. It also dynamically adjusts exposures to take advantage of prevailing market conditions.
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