The coronavirus pandemic is affecting emerging markets (EM) to the point where rating agency S&P Global cut its growth forecasts for the EM space. The agency is predicting that a 4.7% fall in the gross domestic product (GDP) would result due to the effects of the pandemic.
Per a MSN report, S&P Global’s “downward GDP revisions mostly reflected the overall worsening pandemic for many emerging markets and a larger hit to foreign trade compared to its last set of expectations in April that predicted a 1.8% contraction.”
“We project the average EM GDP (excluding China) to decline by 4.7% this year and to grow 5.9% in 2021. Risks remain mostly on the downside and tied to pandemic developments,” S&P said.
If EM is looking to rebound from the pandemic, the space will require leadership from China. After being the epicenter of the coronavirus pandemic, the economy is starting to show signs of life.
“China’s domestic fundamentals look increasingly solid,” Goldman strategists including New York-based Zach Pandl wrote in a note, per a Yahoo! Finance report. “Growth remains sturdy, the virus is reportedly under control, the trade surplus has expanded, and both equity markets and interest rates are moving higher.”
EM Equities Exposure via ETFs
Investors looking to get into EM can use the Goldman Sachs MarketBeta Emerging Markets Equity ETF (GSEE). GSEE seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Solactive GBS Emerging Markets Large & Mid Cap Index.
The fund invests at least 80% of its assets in securities included in its underlying index, in depositary receipts representing securities included in its underlying index and in underlying stocks in respect of depositary receipts included in its underlying index, which consists of equity securities of large and mid-capitalization issuers covering approximately the largest 85% of the free-float market capitalization in emerging markets.
Investors who want broad exposure to EM can look at funds like the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO). VWO employs an indexing investment approach designed to track the performance of the FTSE Emerging Markets All Cap China A Inclusion Index. It invests by sampling the index, meaning that it holds a broadly diversified collection of securities that, in the aggregate, approximates the index in terms of key characteristics.
Another fund to consider is the iShares MSCI Emerging Markets ETF (NYSEArca: EEM). EEM seeks to track the investment results of the MSCI Emerging Markets Index. , which is designed to measure equity market performance in the global emerging markets.
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