Emerging Market Currencies Falling: These ETFs Are Still Hot

The MSCI Emerging Markets Currency Index — a basket of currencies that tracks the country allocations in the emerging market (EM) index — is down nearly 9% from this year’s high on Apr 3. However, the slide has not taken the sheen away from the emerging market ETFs.

This is especially true as iShares Core MSCI Emerging Markets ETF (IEMG - Free Report) has pulled in $10.7 billion so far this year, though some of these were outflows out of the more expensive iShares MSCI Emerging Markets ETF(EEM) which tracks the same index.

SPDR Portfolio Emerging Markets ETF (SPEM - Free Report) , Schwab Emerging Markets Equity ETF (SCHE - Free Report) , First Trust Emerging Markets AlphaDEX Fund (FEM - Free Report) and Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE - Free Report) have year-to-date inflows of $651.41 million, $571.94, $160.67 million and $412.99, respectively.

The strong asset accumulation was credited to cheap valuations as well as strong growth prospects.

As per portfolio specialist at T. Rowe Price, emerging market valuations based on the 2019 price-to-earnings ratio have fallen to discount levels when compared to their historical averages and relative to developed markets. According to him, there is scope for investment in the private banks of Brazil and India, insurance companies of South Africa and China as well as equities of Internet and financial holdings in Russia.

However, the emerging markets are fraught with issues like poor political and economic leadership, institutional weaknesses, reliance on commodity exports, inadequate current account gaps, trade deficit, weak banking sector and budget deficits.

In general, emerging market ETFs are really exposed to sentiments. The investors are mostly foreign to the domestic state of affairs and with all the trade tensions doing rounds, the views may not be very optimistic.

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