Emerging Market ETFs Pop On US-Sino Trade Talks, Rate Hikes

Popular emerging market (EM) ETFs like, Vanguard FTSE Emerging Markets ETF (VWO - Free Report), iShares Core MSCI Emerging Markets ETF (IEMG - Free Report) , iShares MSCI Emerging Markets ETF (EEM - Free Report) , Schwab Emerging Markets Equity ETF (SCHE - Free Report) and Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE - Free Report) all increased on Nov 15 by 0.78%, 0.58%, 0.6%, 0.91% and 0.30%, respectively, as EMs  exhibited their best two-day performance since the start of the month.

Progress in U.S.-Sino trade talks acted as a positive sentiment for these markets. Per Bloomberg, Chinese officials have decided on several trade concessions to be put in front of the Trump administration to end the bitter war causing disruptions not only in Beijing and Washington, but on the entire global economic scenario.

The surge was also attributable to the proactive monetary tightening steps taken by the central banks of Indonesia and Philippines to fight inflation. Both these banks hiked their benchmark rates by 25 basis points each on Nov 15. Indonesian rupiah was among the biggest gainers in the EM currencies on Nov 15.

A recent increase in investments has been observed in the EMs. Per a recent survey by Bank of America Merrill Lynch, investors’ allocation to EM equities jumped to 13% in November from 8% observed in the previous month probably due to cheaper valuation.

Moody’s has a stable outlook for EMs in 2019, saying that ample foreign reserves, surging domestic markets and several fiscal and monetary policy tools will help to overcome the challenges that these markets are facing right now. Moody’s sees Asia-Pacific and South-East Asia regions as bright spots based on robust growth potential.

MSCI EM index has fallen by around 15% year to date (as of Nov 15). A rallying greenback and the recently ended strong rally in oil prices went against the emerging economies that have large foreign debt and are net importers of energy. EMs currently face major headwinds from the rising interest rate scenario in the United States, signs of slowing global economic growth and various geopolitical tensions.

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