Covid-19 remains prime movers for emerging markets, but ETF investors shouldn’t forget about the impact of U.S.-China relations. With an impending U.S. election, relations with the second largest economy should also come to the forefront, which should also move emerging markets.

“The final week of August may prove key for emerging markets attempting to erase this year’s losses as investors fret that rising U.S.-China tension will overshadow optimism about vaccine developments,” a Bloomberg article noted. “Stocks, currencies and dollar bonds from the developing world fell last week after President Trump called off a meeting on the trade pact. MSCI Inc.’s emerging-market equity gauge halted a four-week winning streak, while Brazil’s real and Russia’s ruble both dropped more than 2%. Dollar bonds slid for a second week, the first back-to-back decline since the pandemic was declared in March, a Bloomberg Barclays index shows.”

“The main thing markets will continue to focus on is U.S.-China,” said John Malloy, co-head of emerging and frontier markets at RWC Partners in Miami.

Of course, it’s hard to deny the impact of Covid-19 as more economies look to reopen and investor optimism around a vaccine should also affect the EM space.

“Markets should continue to trade vaccine headlines, and although a ‘silver bullet’ vaccine is unlikely in the near term, expedited review processes in some countries (e.g. China and Russia) could present upside surprises as the year concludes,” said Citigroup strategists.

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