Are Emerging Market ETFs In Trouble?

For a specific country look, iShares MSCI Turkey ETF (TUR - Free Report) and VanEck Vectors Egypt Index ETF (EGPT - Free Report) have shed 15.6% and 10.4%, respectively, over the past month.

What Lies Ahead?

Despite the recent slide, emerging markets look attractive thanks to improving economic growth in a number of the developing countries, a pickup in manufacturing activity, rise in commodity prices, better current accounts, better-than-expected earnings and growth policies (read: Time for Emerging Market ETFs?).

Additionally, emerging markets appear attractive at current levels after being beaten down badly amid the pandemic. Notably, the ultra-popular Vanguard FTSE Emerging Markets ETF (VWO - Free Report) has a P/E ratio of 19.2 versus that of 22.1 for SPDR S&P 500 ETF (SPY - Free Report) .

Additionally, the accommodative policy of the Fed will support the emerging market equities as it will keep the greenback at check. The Fed has pledged to keep interest rates near zero with no interest rate hikes through 2023. It will continue to buy $120 billion in Treasury and mortgage-backed securities per month. However, the central bank projects a rapid jump in U.S. economic growth and inflation this year as the COVID-19 crisis winds down. Continued rise in inflation could again be a worry for the space but it is a sign of strengthening domestic economy that could lead to higher demand and benefit emerging market exporters (see: all the Broad Emerging Market ETFs here).

Given the strong long-term outlook but somewhat bearish near-term sentiments, investors may want to consider staying on the sidelines for the time being. However, risk-tolerant, long-term investors may want to consider this recent slump a buying opportunity, should they have the patience for extreme volatility.

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Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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