Can Domestic Travel Breathe Life Back Into Emerging Markets?

Travel restrictions as a result of the pandemic have obviously taken a toll on tourists taking to the skies to head overseas, but domestic travel could see a rise—something that could help breathe some much-needed life into emerging markets (EM).

“Since the COVID-19 outbreak was first reported in China in December 2019, some 5.58 million people have been infected with the virus, leading to 348,000 deaths globally as of May 25,” a Phuket News article noted. “Although international travel ground to a halt in the first quarter of 2020, domestic tourism could become a popular approach to stimulating economic growth as restrictions are eased in many countries around the world.”

Travel within the country can certainly help re-acclimate the general populace to the general public after quarantine and lockdown measures have been in effect across the globe. There’s been a general trend in countries that are experiencing the most domestic travel as the world looks to reopen following the pandemic.

“The revival of domestic travel in emerging markets is being led by countries that have been comparatively successful in avoiding large-scale outbreaks of the virus, and which rely on tourism for a significant portion of GDP,” the article stated further. “One such country is Vietnam, which by May 25 had limited COVID-19 cases to 326 and had not experienced a virus-related death. These results are remarkable considering Vietnam’s population of 97mn and its close geographical and economic ties with China.”

An EM ETF with Built-in Currency Hedging

With the ongoing risk in EM assets amid the pandemic, investors will want to employ some method of hedging, and while investors can utilize a plethora of currency hedging techniques, one way to do so without overcomplicating the process is via currency-hedged exchange-traded funds (ETFs). One fund is that hedges against EM countries like Brazil is the Xtrackers MSCI Emerging Markets Hedged Equity ETF (DBEM).

DBEM seeks investment results that correspond generally to the performance of the MSCI EM US Dollar Hedged Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the underlying index, which is designed to track emerging market performance while mitigating exposure to fluctuations between the value of the U.S. dollar and the currencies of the countries included in the underlying index. It will invest at least 80% of its total assets in component securities of the underlying index.

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