This year brought more disappointment when it comes to emerging markets equities and the related exchange traded funds, extending a now-lengthy run of developing economy stocks providing investors with essentially nothing to cheer about.
Predictably, China was a major culprit in the 2022 dud status of emerging markets stocks. The world’s second-largest economy often commands a massive a percentage of broad-based emerging markets ETFs. As such, when stocks there falter, ETFs such as the SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG), are vulnerable.
Conversely, REMG stands as a viable rebound candidate in 2023 if Chinese equities bounce back. REMG, which tracks the Bloomberg SASB® Emerging Markets Large & Mid Cap ESG Ex-Controversies Select Index, allocates 35.37% of its roster to China. That trait was a drag for essentially all of this year, but it could be a positive in 2023 if China’s coronavirus reopening pays off.
“Earlier this month, the Chinese government implemented sharp changes to its Covid policies, allowing domestic travel and quarantines at home in a move to keep businesses running. Among the changes, people will no longer need a negative Covid test to travel to a different part of the country. Local authorities have also removed many testing requirements,” reported Fred Imbert for CNBC.
Indeed, China’s reopening isn’t a risk-free endeavor. Market observers and medical experts are already forecasting that in the months ahead, the country could see as many as 5,000 COVID-19 cases per day and up to 1 million deaths next year due to factors such as lack of herd immunity and reluctance to use vaccines manufactured by western healthcare companies.
As just one example already popping up, and one relevant to the China consumer spending thesis, it’s estimated that nearly half of all casino workers in Macau are currently infected with COVID-19. Scenarios like that could weigh on China’s near-term rebound efforts, but some analysts are more bullish on 2023 as a whole being conducive to emerging markets equity upside.
“JPMorgan chief global markets strategist Marko Kolanovic said in a Dec. 8 note that he sees emerging market stocks returning 14% to investors in 2023, citing the potential for strong economic growth in China as the country reopens for part of the bounce,” according to CNBC.
Other potential 2023 positives for REMG include the Federal Reserve slowing its pace of interest rate increases and the dollar losing momentum — both of which are possible if inflation in the U.S. continues easing.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.