As was widely documented, emerging markets equities and the relevant exchange traded funds struggled last year. The widely followed MSCI Emerging Markets Index tumbled more than 15% last year while the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) shed 14.9%.
Recent data points indicate traders are buying some marquee ETFs tracking developing economies. After the recent pullback in the equities market, bargain hunters may look to beleaguered emerging market stocks and region-related ETFs for value. Indeed, there is a value proposition to be had with emerging market stocks.
While the majority of investors might be driven away by the red prices in emerging markets, some market observers believe they should be looked at as substantial markdowns, especially if trade negotiations between the U.S. and China result into something materially positive–that’s what emerging markets bettors are essentially banking on.
“Developing-nation assets jumped anew on Monday as traders took their cue from China’s move last week to release more cash into the financial system and speculation that the Federal Reserve will pause interest-rate increases this year,” reports Bloomberg.
A Good Start
While there is plenty of work to be done, emerging markets equities are starting 2019 on strong footing. The MSCI Emerging Markets Index gained more than 2% in the first trading week of the year. Investors appear to be embracing the ideas that the dollar will weaken this year and that the Federal Reserve will slow its pace of interest rate hikes or that no rate increases at all will be delivered in 2019.
“The largest emerging-market equity exchange-traded fund had its biggest gain in more than two months Friday, while the risk premium on sovereign debt narrowed by the most since November 2016, according to data compiled by JPMorgan Chase & Co.,” according to Bloomberg.
Over the near term, a breakthrough in trade talks between the U.S. and China could serve as an important catalyst for emerging markets assets, including equity-based ETFs.
“True, two days of U.S.-China trade talks starting Monday are hanging over markets, though Mitul Kotecha, a senior strategist at TD Securities in Singapore, says there are good reasons for both sides to want a breakthrough,” reports Bloomberg.
For more information on global markets, visit our global ETFs category.