Developed Market ETFs Could Outperform Their Emerging Counterpart

Global investors should focus on exchange traded funds that track developed markets as emerging economies could continue to struggle with rising coronavirus cases.

The International Monetary Fund projected a 6% global growth forecast for 2021 after it upgraded its outlook for the United States and other wealthy countries but lowered its estimates for developing economies as they tackle a surge in Covid-19 infections, Bloomberg reports.

According to the IMF, the divergence between the developed and emerging economies is due to access to Covid-19 vaccines and ongoing accommodative measures in more advanced economies. For example, the IMF upgraded its outlook on the U.S. economy based on the assumption that Congress will approve President Joe Biden’s $4 trillion in proposed infrastructure, education, and family support spending. Additionally, this would have a positive spillover effect on the rest of the world economy.

Rates Around The World

“Close to 40 percent of the population in advanced economies has been fully vaccinated, compared with 11 percent in emerging market economies, and a tiny fraction in low-income developing countries,” Gita Gopinath, the IMF’s chief economist, said during a news conference.

“Faster-than-expected vaccination rates and return to normalcy have led to upgrades, while lack of access to vaccines and renewed waves of COVID-19 cases in some countries, notably India, have led to downgrades,” she added.

The IMF has downgraded its outlook on Southeast Asian economies due to the recent wave of Covid-19 infections that are depressing economic activity, with slow vaccine rollouts considered a major impediment to their recovery.

Additionally, the IMF warned of other downside risks globally, including the potential for novel highly contagious coronavirus variants to trigger new restrictions and cut down economic activity.

Investors can target globally developed markets through ETF strategies as well. For example, the Vanguard FTSE Developed Markets ETF (VEA), iShares MSCI EAFE ETF (NYSEArca: EFA), and Schwab International Equity ETF (NYSEArca: SCHF) are some popular options that provide exposure to wealthier developed economies around the world.

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