Emerging market (EM) ETFs have had a terrible phase in the past year (as of Jan 18, 2019) with iShares MSCI Emerging Markets EEM losing more than 18%. Rising rate worries, U.S.-Sino trade tensions and huge sell-off in the EM space in mid-2018, especially due to crisis in Turkey and Argentina, as well as recession in South Africa’s asset market caused the debacle.
However, things are looking up this year. The fund EEM has added 6.4% this year (as of Jan 18, 2019). The segment is doing well on dovish Fed minutes, which kept a check on the greenback. This in turn favored EM currencies. WisdomTree Emerging Currency Strategy ETF CEW is up 1.8% this year (as of Jan 18, 2019) (read: Dovish Fed Minutes Should Boost These ETFs).
Plus, per the Wall Street Journal, the United States is reportedly mulling over a proposal to lift some or all U.S. tariffs on Chinese goods in order to facilitate trade talks. Both parties are currently in the middle of a 90-day partial trade truce.
After Mar 1, 2019, the existing 10% tariff on $200 billion Chinese goods will rise to 25%, if the United States and China fail to reach a deal. China is striving to reach a solution and has proposed U.S. trade negotiators a six-year boost in imports, per CNBC (read: U.S., China to Reach a Trade Deal? ETF Areas to Gain).
China has also indicated a broad-based tax cut to boost its economy. EM bloc boasts attractive valuation. Expectations of the Fed slowing U.S. interest rate hikes will also make EMs more compelling. Higher interest rates in developed markets normally diminish the appeal of high-yielding EM ETFs. Fidelity multi-asset is also now overweight on emerging stocks.
If these weren’t enough, the Brexit process will not weigh on the segment as EM stocks are comparatively less exposed to it. Trade relations between the U.K. and the broad-based emerging market are meager, posing no-to-little threat to emerging market investing.All these factors led EM equities to record the longest rally in a year (read: Play These Emerging Market Bond ETFs to Lessen Brexit Woes).
EM funds raked in about $3.3 billion in assets for the week ending Jan 17, according to EPFR Global data, continuing the stretch of inflows for the asset class to 14 weeks, as quoted on Financial Times. EM bond funds hauled in about $2.4 billion for the week ending Jan 17, the largest weekly gain since late last January, according to EPFR Global figures.
Below we highlight a few EM ETFs that have been the top-performers this year (as of Jan 18, 2019).
Emerging Markets Internet & Ecommerce ETF EMQQ — Up 11.23%
iShares MSCI Saudi Arabia ETF KSA — Up 10.94%
iShares MSCI Russia ETF ERUS — Up 10.42%
iShares MSCI Turkey ETF (MC:TUR) — Up 9.6%
Invesco BRIC ETF (CN:EEB) — Up 9.1%
ALPS Emerging Sector Dividend Dogs ETF EDOG — Up 9.1%
VictoryShares Emerging Market High Dividend Volatility Weighted ETF (LON:CEY) — Up 9.0%
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iShares MSCI Turkey ETF (TUR): ETF Research Reports
Invesco BRIC ETF (EEB): ETF Research Reports
iShares MSCI Emerging Markets ETF (NYSE:EEM): ETF Research Reports
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