The emerging markets have been pummeled this year, but ETF investors may find a growth opportunity among the developing economies as their markets recover.
Investment bank Goldman Sachs expected emerging market shares, currencies and bonds to see a modest rebound next year, Reuters reports.
“We expect modest positive returns across the major EM indices next year, albeit with low risk-adjusted returns,” analysts at Goldman said in a 2019 outlook report.
The bank projected emerging market equities could experience the greatest rise at 12% in dollar terms, while EM currencies should strengthen by around 2% on average on economic improvements and a modestly weaker U.S. dollar. Meanwhile, in the local currency bond market, they added that closely tracked GBI-EM debt index could see a 10% rebound on an “unhedged” basis and including “duration effects”.
Investors who believe in the emerging market outlook have a number of ways to gain exposure to the international segment. For example, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) have been popular ways to gain broad exposure to the developing markets.
Additionally, the something like the Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM) provides a smart beta or multi-factor approach to the emerging markets. GEM tries to reflect the performance of the Goldman Sachs ActiveBeta Emerging Markets Equity Index, which includes exposure to developing market stocks but selects components based on good value, strong momentum, high quality and low volatility.
The WisdomTree Emerging Currency Strategy Fund (NYSEArca: CEW) provides exposure to U.S. dollar moves against a diversified basket of emerging market currencies.
Additionally, the VanEck Vectors Emerging Markets Local Currency Bond ETF (NYSEArca: EMLC), WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD), SPDR Bloomberg Barclays Emerging Markets Local Bond ETF (NYSEArca: EBND) and iShares Emerging Markets Local Currency Bond ETF (NYSEArca: LEMB) all include access to emerging market debt that are denominated in their local currencies, which should provide an extra kick if emerging currencies appreciate against the USD.
For more information on global markets, visit our global ETFs category.