The U.S.-China trade impasse heavily discounted a lot of U.S. equities the past week, but it also put the red tag sale on emerging markets (EM). Combine the tariff battles with a cautious U.S. Federal Reserve, and it puts the EM space at an attractive valuation relative to its peers.
While most investors might have been driven away by the losses in EM during much of 2018, savvy investors who were quick to see the opportunity viewed EM as a substantial markdown. From a fundamental standpoint, low price-to-earnings ratios in emerging markets ETFs have made them prime value plays as capital inflows continue in 2019.
“Emerging markets have been so unloved lately,” noted Morningstar’s senior analyst for equity strategies, Christopher Franz. “This would be a great time for investors to rebalance EM stocks back into their portfolio.”
Ongoing U.S.-China trade negotiations and geopolitical tensions put emerging markets in a state of unease in 2018, but investors can now look to their resurgence through other broad-exposure ETFs like the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) or iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG).
Investors are increasingly emphasizing low cost a prime motivator for allocating capital in 2019, which makes ETFs like IEMG an attractive option. The fund provides this core EM exposure at a paltry 0.14 percent expense ratio.
Tech and EM in One ETF
Can’t make up your mind whether to invest in the plethora of emerging markets available in the ETF space or the Invesco QQQ Trust (NASDAQ: QQQ). The Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ) marries the idea of technology and EM in one ETF.
EMQQ invests in companies with exposure to the ecommerce and Internet sectors in emerging markets. Purchasing EMQQ provides exposure to companies that are positioned to benefit as emerging economies mature, the consumer class expands, and their populations increases their utilization of the Internet and ECommerce.
The fund provides broad-based exposure to the big names in tech overseas like Tenecent Holdings. Just take a look at its top 10 holdings:
Tencent has a history of investing in companies with either complementary technologies and services as well as emerging products and technologies,” according to EMQQ. “These have been used to either strengthen the company’s existing platforms or to expand into new areas. Many of these investments have become successful and spun out of Tencent.”
To the outside world, these names may not be familiar, but in the global marketplace, they represent the equivalent of the Googles and Amazons in the U.S. In a late market cycle, it could be these equities investors may look to internationally once the U.S. exits out of this extended bull run.
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