Some market observers are increasingly enthusiastic about emerging markets equities. In a recent note, Goldman Sachs Asset Management (GSAM) said developing world stocks are attractive after last month’s sell-off trimmed valuations.
Emerging markets are enjoying improved fundamentals thanks to corporate earnings improving as economic growth rebounds and strengthening currencies against the U.S. dollar on the back of improved economic outlooks. Investors would do well to not simply focus on the weak dollar or supposedly compelling valuations on emerging markets stocks.
“Unlike previous market corrections, when developing nations suffered big outflows, clients have been adding more money to the riskiest assets, said Sheila Patel, the chief executive officer of International GSAM,” reports Bloomberg. “That’s been a sound strategy during the past month as emerging-market stocks returned 3.1 percent, beating the 2.5 percent gain for U.S. peers.”
In the world of exchange traded funds, investors are embracing emerging markets funds. For example, the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) are both among this year’s top 10 asset-gathering ETFs.
Investors have added $5.74 billion in new money to IEMG year-to-date, a total surpassed by just two other ETFs. EEM has seen 2018 inflows of $2.6 billion, a total exceeded by just six other ETFs.
“Goldman Sachs Group Inc.’s asset-management arm, which manages more than $1 trillion, joins GMO, Voya Investment Management and JPMorgan Chase & Co. in touting emerging markets to clients after the benchmark stock index surged more than 75 percent since early 2016,” according to Bloomberg. “Bulls argue that developing-nation stocks are supported by earnings growth, cheap historical valuations and lower volatility than their more industrialized peers.
According to a recent Bloomberg survey, investors pointed to selective emerging market opportunities, such as Mexico and Brazil, which were among the most favored emerging market investment destinations. For its part, BlackRock is bullish on China, Brazil and India. Those countries combine for over 44% of IEMG’s weight.
IEMG debuted just over five years ago as the low-cost alternative to EEM. With investors increasingly prioritizing fees in the ETF evaluation process, IEMG’s status as a cost-effective avenue to emerging markets stocks has helped the fund grow at a blistering pace.
For more information on the developing economies, visit our emerging markets category.