With risk appetite dial set on high, more investors may want to reconsider their exposure to emerging markets? But with potential roadblocks ahead like more Covid-19 uncertainty, should investors still be underweight in EM assets?
Global investment firm BlackRock thinks so. Per a CNBC article, the firm “has an ‘underweight’ stance on stocks in emerging markets as many of those economies are still grappling with the spread of the coronavirus, one strategist told CNBC on Thursday.
“Stocks in emerging markets have lagged global share prices,” the article noted further. “The MSCI Emerging Markets Index up inched up around 0.4% so far this year — far behind the 5.8% gains in the MSCI World Index during the same period, according to data by Refinitiv.”
“Broadly, tactically, we remain a little bit cautious around EM,” Ben Powell, chief investment strategist for Asia Pacific at BlackRock Investment Institute, told “Squawk Box Asia.”
“This is frankly because the virus is still extremely present and the issues around the health-care challenge and economic policy response are still not, I’m afraid to say, been dealt with,” he added.
On the flip side, some firms are on the opposite end of the spectrum. Given their recent devaluation since the pandemic, now could be the time to strike in terms of getting EM exposure.
“Emerging market stocks are well placed to outperform the majority of their developed peers and we, therefore, upgrade the asset class to overweight,” Pictet Asset Management said in a report. “Led by China, the emerging world is enjoying an earlier and stronger economic recovery than advanced economies, a development that is not yet discounted by the market.”
ETF Emerging Markets Exposure
For broad exposure to emerging markets, ETF investors can take a look at the FlexShares Morningstar Emerging Markets Factor Tilt Index Fund (TLTE). The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Morningstar® Emerging Markets Factor Tilt IndexSM.
The index is designed to reflect the performance of a selection of companies that, in aggregate, possess greater exposure to size and value factors relative to the Morningstar Emerging Markets Index, a float-adjusted market-capitalization weighted index of companies incorporated in emerging-market countries. The fund will invest at least 80% of its total assets in the securities of the index and in ADRs and GDRs based on the securities in the index.
Another fund is the FlexShares Emerging Markets Quality Low Volatility Index Fund (QLVE). QLVE seeks investment results that correspond generally to the price and yield performance of the Northern Trust Emerging Markets Quality Low Volatility IndexSM, which is designed to reflect the performance of a selection of companies that, in aggregate, possess lower overall absolute volatility characteristics relative to a broad universe of securities domiciled in emerging market countries.
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