Global companies like Nestle and Unilever are feeling the pangs of a sales slowdown in emerging markets sales, which could be a sign that EM investors might want to take notice when allocating capital to these niche markets.

Per a Reuters report, “Unilever, Nestle and drinks group Pernod Ricard all pointed to slower progress in key Asian markets as a factor for muted sales growth over the last three months but for the time being are keeping targets intact.”

India and China, in particular, were the areas where stagnant sales were most apparent. Packaged goods companies like Nestle and Unilever are looking to leverage EM sales more as part of their core business models, but that may not be sustainable in the long run given the recent sales data.

“There have definitely been signs of slowing markets in India and China,” said Unilever finance chief Graeme Pitkethly.

The Reuters report also noted that the U.S.-China trade war is also showing its effects as the tariff battle is “hitting domestic consumption in China and more erratic and damaging monsoons curbing rural spending in India.” That said, the EM space is hoping that more tangible agreements materialize in the latest trade negotiations between the two largest economies.

If there’s an investing angle to be had in this latest development, it could be developed market equities over EM via relative value exchange-traded funds (ETFs).

The U.S.-China trade war continued to be a thorn in the side for emerging markets (EM) in 2019. After getting off to a strong start, the tariff-for-tariff battle between the two largest economies is weighing on EM and more weakness could be ahead—an opportunity for Direxion MSCI Developed Over Emerging Markets ETF (NYSEArca: RWDE).

RWDE provides a means to not only see developed markets perform well, but a way to access a convergence/catch-up in performance of DM relative to EM, a spread that has clearly widened over the past 6 months. The fund seeks investment results, before fees and expenses, that track the MSCI EAFE IMI – Emerging Markets IMI 150/50 Return Spread Index.

The index measures the performance of a portfolio that has 150% long exposure to the MSCI EAFE IMI Index (the “Long Component”) and 50% short exposure to the MSCI Emerging Markets IMI Index (the “Short Component”).On a monthly basis, the Index will rebalance such that the weight of the Long Component is equal to 150% and the weight of the Short Component is equal to 50% of the Index value. In tracking the Index, the Fund seeks to provide a vehicle for investors looking to efficiently express a developed over emerging investment view by overweighting exposure to the Long Component and shorting exposure to the Short Component.

For more relative market trends, visit our Relative Value Channel.

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