After rebounding a bit in 2016, emerging markets stocks and exchange traded funds are following through in a big way in 2017 as highlighted by a year-to-date gain of almost 24% for the iShares MSCI Emerging Markets ETF (NYSEArca:EEM).
On a technical basis, the widely followed MSCI Emerging Markets Index, the benchmark tracked by EEM, is breaking out of a 10-year downtrend. Oppenheimer’s Ari Wald notes this ““not only carries significance for the future direction of EEM’s trend — we think higher — but also for the cyclical recovery as well because broadening global participation remains a focal point to our outlook,” according to Seeking Alpha.
That also bodes well for the iShares Core MSCI Emerging Markets ETF (NYSEArca:IEMG), the low cost alternative to EEM. IEMG has added $11.1 billion in new assets this year, a total exceeded by just two other ETFs. IEMG is the top asset gatherer among US-listed emerging markets ETFs.
Underscoring the strength in emerging markets ETFs, 10 such funds hit all-time highs Wednesday. Roughly 70 of the ETFs in the new 52-week high club, including EEM and IEMG, were emerging markets funds.
“Emerging markets have benefitted year to date from the surprise U.S. dollar weakness, very strong earnings, and modest valuations. But investors want to know if this rally is still in the early innings or closer to the ninth,” according to LPL Financial in the Seeking Alpha post. “One major positive suggesting it’s early in the game is that the MSCI Emerging Markets Index is in the process of breaking out of a bearish trendline going back nearly 10 years, suggesting a major change in trend is taking place and EM could score more runs.”
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IEMG was the most popular ETF of the first quarter, bringing in $6.6 billion in net inflows so far this year, according to XTF data. Investors may be looking at this cheap Emerging Markets option as a way to gain access to emerging markets where valuations are much lower than the loftier prices in U.S. markets.
EEM currently resides about 13.6% above its 200-day moving average and has not closed below that level since early this year. The ETF trades about 29% above its 52-week low.