“ETF flows tell us a lot. Since the low in 2009, investors have bought the dips–they haven’t yet, but they haven’t sold,” added Lydon. “So far, we’ve had record inflows into ETFs this year, which have been very positive.”
Shrewd Emerging Markets Investors
Whether it’s investor shrewdness or overexuberant hope, capital allocators into emerging markets still won’t budge, according to Lydon. The markets continue to witness flows into the EM space as investors are beginning to see opportunities abroad as volatility reigns in the U.S. capital markets.
In the last 30 days, emerging markets have been relatively flat while major U.S. indexes like the S&P 500 have lost 4 percent. ETFs like the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG)have seen inflows of $2.8 billion within the last month.
“Surprisingly, more people buying emerging markets than selling emerging markets,” said Lydon.
The U.S. stock market has been the default play for investors during the historic, decade-long bull run, but the latest volatility may have steered them off course and opportunities abroad could be an alternative. Despite the deep declines in emerging markets this year, with respect to value compared to price, many of these ETFs from abroad present a profitable opportunity that can be realized, especially if China and the U.S. ameliorate their trade differences.
While the majority of investors might be driven away by the red prices in emerging markets, Lydon believes they should be looked at as substantial markdowns, especially if trade negotiations between the U.S. and China result into a tangible trade deal with permanence.
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