Emerging Markets ETFs Face Dollar Dilemmas

Emerging markets equities still trade at a discounts relative to U.S. benchmarks, but the utility of the quality factor in the developing world cannot be understated. Historically, when emerging markets stocks decline, it is lower quality names driving those declines.

“Emerging markets with large trade deficits that are most dependent on foreign capital inflows have been hit hardest. Examples include Turkey, South Africa, Indonesia and Brazil. History suggests the fate of EM stocks will remain highly dependent on the dollar’s trajectory. None of the drivers of recent US dollar strength—better relative economic growth, Fed tightening and relatively high, long-term rates have thus far shown any signs of easing,” according to Young.

For more ETF trends in emerging markets, click here.

Tom Lydon’s clients own shares of VWO.