Emerging market ETFs are quickly growing in popularity among investors.
According to Bank of America Merrill Lynch, investors funneled $3.3 billion into emerging market equity funds last week, the largest net inflow in 21 weeks, reports Chelsey Dulaney for the Wall Street Journal.
For instance, among the most popular ETF plays over the past week, the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) experienced $961.7 million in net inflows and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) added $478.7 million in new assets.
Supporting the emerging market play, demand for high-yielding assets and growing momentum in global economic growth have attracted greater investment interest. So far this year, MSCI’s emerging market stock index has jumped 31%.
Furthermore, a similar index of emerging market currencies have appreciated 8.7% this year, which also helped bolster developing market’s appeal. The U.S. dollar has depreciated 7.2% against a basket of major peers, adding to the appeal of emerging markets as dollar-denominated debts become easier to service and U.S. dollar-denominated commodities grow cheaper to export for global buyers.
Related: 5 Factors to Support Commodity ETFs
However, some market observers warned that investors may be becoming too reliant on higher-yielding and riskier investments in the ongoing search for yields in a low-rate global environment. With some of the world’s largest central banks moving to normalize monetary policies, analysts argued that the rally in emerging market assets may losing speed.
Nevertheless, many still believe in the emerging market story as inflation remains weak and the global economic expansion continues to pick up pace.
The International Monetary Fund recently raised its forecasts for global growth to 3.6% for 2017 and 3.7% for 2018, compared to the 3.2% expansion recorded in 2016. Looking at emerging countries, the IMF projects a 4.6% growth this year and 4.9% in the next, compared to 4.2% last year.
For more information on the developing economies, visit our emerging markets category.