Investors can turn to exchange traded fund strategies to expand their portfolios into international markets.
“The COVID-19 pandemic has accelerated profound shifts in how economies and societies operate. These transformations run across four dimensions: sustainability, inequality, geopolitics and the joint fiscal-monetary policy revolution,” according to the BlackRock Investment Institute (BII).
“Three of BII’s new investment themes — The new nominal, Globalization rewired and Turbocharged transformations — reflect these shifts. Taken together, they call for a fundamental and immediate rethink of portfolio allocations.”
Specifically, BlackRock Investment Institute argues that COVID-19 has accelerated geopolitical transformations like a bipolar U.S.–China world order and adaptation in the global supply chains, which has created greater emphasis on resilience, even at the expense of efficiency.
“The BII favors deliberate country diversification and above-benchmark China exposures on a strategic, twelve-month time horizon. In a six to twelve-month time horizon, we like emerging market equities, especially Asia excluding Japan, and are underweight Europe and Japan,” according to BlackRock.
As a way to gain diversified exposure to the emerging markets, investors can look to funds like the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG). IEMG tries to reflect the performance of the MSCI Emerging Markets Investable Market Index, providing low-cost, comprehensive access to stocks in emerging market countries. The ETF can be used at the core of a portfolio to diversify internationally and seek long-term growth to large-, mid- and small-capitalization emerging market equities.
For more targeted exposure to a growing Chinese economy, investors can also turn to the iShares MSCI China A ETF (BATS: CNYA), which tries to reflect the performance of the MSCI China A Inclusion Index, which is composed of domestic Chinese equities that trade on the Shanghai or Shenzhen Stock Exchange. CNYA seeks access to the Chinese A-Share stock market, which has historically been largely inaccessible to international investors. The ETF can provide exposure to the locally listed portion of the Chinese stock market that is denominated in the local currency, or Chinese renminbi.
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