Slowing Coronavirus Cases Opens Up Opportunities in Emerging Markets

The effects of the coronavirus could be less severe as investors added more emerging market assets during Tuesday’s trading session as the major indexes are headed to new highs and a risk-on sentiment creeps back into the markets. Nonetheless, analysts are warning investors to not get too optimistic when the coronavirus still remains as the wild card.

Per a Reuters report, “China recorded a daily drop in new cases, offering a glimmer of hope that the epidemic might be peaking. It has so far killed more than 1,000 people, with concerns growing over how damaging its impact would be on the world’s second largest economy. China’s top medical adviser on the outbreak said the epidemic may peak in February and then plateau before easing.”

“It seems that markets have assumed the worst is over with regards to the coronavirus,” said Piotr Matys, emerging markets FX strategist at Rabobank. “But optimism that the virus is contained is overdone because we haven’t seen concrete evidence, so we maintain a cautious view.”

When it comes to emerging markets, one of the prime market movers is their local currency. With the coronavirus having a negative effect on the value of currencies, central banks will have to respond accordingly.

“Central banks in emerging markets will move to action and aggressively cut rates in a deterioration of growth caused by the coronavirus, which will on the margin weaken the currency but yet ultimately, and sometimes immediately, be a stimulus to boost the equity market,” said Clifton Hill, global macro portfolio manager at Acadian Asset Management, in a MarketWatch report.

Getting Active in EM with “ELD”

Investors can look to get active with emerging markets exposure using the WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD). ELD seeks a high level of total returns consisting of both income and capital appreciation.

The fund attempts to achieve its investment objective through investment in local debt denominated in the currencies of emerging market countries. Constituent countries: Brazil, Chile, Colombia, Mexico, Peru, Poland, Romania, Russia, South Africa, Turkey, China, Indonesia, Malaysia, Philippines, South Korea and Thailand.

Benefits of Investing in ELD:

  • Utilizes an actively managed structured investment process focused on continuous risk management and offers high income potential, diversification, and total return through combination of Emerging Market interest rates and currencies
  • Invests in locally denominated debt of select Emerging Market countries or instruments designed to provide similar exposure.
  • Use to help increase portfolio yield as non-core fixed income allocation

For more market trends, visit ETF Trends.