Emerging Market ETFs Pop On U.S.-Sino Trade Talks, Rate Hikes

Popular emerging market (EM) ETFs like, Vanguard FTSE Emerging Markets ETF VWO, iShares Core MSCI Emerging Markets ETF IEMG, iShares MSCI Emerging Markets ETF (NYSE:EEM) EEM, Schwab Emerging Markets Equity ETF (NS:SCHE) and Schwab Fundamental Emerging Markets Large Company Index ETF FNDE 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 (read: Buffett Bets Big on Banks: Should You Tap Financial ETFs?).

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 (NYSE:BAC), 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 (read: Fed Meet Signals December Rate Hike: ETFs That Gained).

Discounted valuations, progress in trade talks and the recent halt in the greenback’s surge will keep the following EM ETFs in the spotlight (see: all the Broad Emerging Market ETFs):

VWO

The fund tracks the FTSE Emerging Index and comprises 4644 holdings. Country wise, China (33.8%), Taiwan (14.4%) and India (11.1%) have double-digit exposure each. AUM is $54.6 billion and expense ratio is 0.14%.

IEMG

The fund tracks the MSCI Emerging Markets Investable Market Index. There are 1879 holdings in the basket. The countries with double-digit exposure are China (28.5%), South Korea (14.5%) and Taiwan (12.4%). AUM is $46.3 billion and expense ratio is 0.14%.

EEM

The fund tracks the MSCI Emerging Markets Index and comprises 979 holdings. China (30.4%), South Korea (14%) and Taiwan (11.5%) have double-digit exposures. AUM is $28.6 billion and expense ratio is 0.69% (read: ETFs to Benefit & Lose From a Strengthening Dollar).

SCHE

The fund tracks the FTSE All Emerging Index. There are 977 holdings in the basket. China (34.1%), Taiwan (14.1%) and India (11.1%) are countries with double-digit exposure each. AUM is $4.7 billion and expense ratio is 0.13%.

FNDE

The fund tracks the Russell Fundamental Emerging Markets Large Company Index. There are 361 holdings in the basket. Countries with double-digit exposure are China (20.2%), South Korea (19.8%), Russia (13.3%) and Taiwan (12.6%). AUM is $2.1 billion and expense ratio is 0.39%.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>