The U.S. and China are set to sign their “phase one” trade deal this week and emerging markets (EM) equities have been feeding off the anticipation since late last year. In the early goings of 2020, the EM space has been a stellar performer as evidenced by the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO).
“Another week, another gain for shares in emerging markets, which posted the strongest increase for the major asset classes over the trading week through January 10, based on a set of exchange-traded funds,” wrote James Picerno in a Seeking Alpha report. “The Vanguard FTSE Emerging Markets ETF (VWO) rose 1.2% last week, marking the sixth straight weekly advance for the fund. Except for a three-week lull in November, VWO has increased in every week since late September. The rally continued in overseas trading today, fueled by reports that the US and China will sign a partial trade deal this week.”
In the past year, VWO is up over 17% based on Yahoo Finance performance figures. As for the fund itself, VWO seeks to track the performance of a benchmark index that measures the investment return of stocks issued by companies located in emerging market countries.
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.
Relative Value EM Play
For investors looking for the continued upside in emerging market assets, whether driven by a weakening USD or continued developments around trade, the Direxion MSCI Emerging Over Developed Markets ETF (NYSEArca: RWED) offers them the ability to benefit not only from emerging markets potentially performing well but from emerging markets outperforming developed markets.
RWED seeks investment results that track the MSCI Emerging Markets IMI – EAFE IMI 150/50 Return Spread Index. The Index measures the performance of a portfolio that has 150 percent long exposure to the MSCI Emerging Markets IMI Index and 50 percent short exposure to the MSCI EAFE IMI Index.
Look for developments in China to continue being a major mover in EM for 2020.
“I think that for EM to work, China has to work,” said John Davi, founder, and chief investment officer of Astoria Portfolio Advisors, eluding to forecasts that China’s expected earnings per share growth for 2020 is projected higher than that of the United States. “China’s injecting a lot of liquidity into the system. So, we use MCHI in our portfolio, [and]that’s one of our top picks.”
For more relative market trends, visit our Relative Value Channel.