Investors are becoming more finicky when it comes to the emerging markets, eschewing broad exposure and scrutinizing countries on a case-by-case basis. With country-specific exchange traded funds, anyone can customize their emerging market exposure.
Create Research and Principal Global Investors have found that many investors are looking through individual countries more closely after experiencing broad emerging market volatility, reports Chris Vellacott for Reuters. [EM ETFs: All Countries Are Not Created Equal]
In a survey of 700 pension funds, sovereign wealth funds, consultants and asset managers across 30 countries with $29.7 trillion in assets, the percentage who remain optimistic about the emerging markets nearly halved in two years.
“Investors have not lost faith in the emerging market story; they are simply questioning it. The scales have tilted somewhat from 2012 to 2014,” according to the report.
The survey discovered that “believers” in emerging markets dipped to 20% from 38% between 2012 and 2014, whereas “skeptics” jumped to 28% from 18%.
The results line up with the Federal Reserve’s decision to taper its record quantitative easing policy, which would pull back access to easy money that has fueled emerging market stocks.
“The study indicates there is no longer a blanket acceptance of the emerging market story. Investors’ return expectations have dropped markedly for equities and bonds,” Nick Lyster, European CEO of Principal Global Investors Europe, said in the article.
Consequently, investors are now more likely to examine countries and their economic benefits individually. For instance, countries that can push through economic reforms remain attractive, with one third of respondents pointing to China, which is in the middle of shifting over to a domestic consumption-oriented economy.
ETF investors interested in gaining targeted exposure to China have a number of options available. ETFs like the iShares China Large-Cap ETF (FXI) , iShares MSCI China ETF (MCHI) and SPDR S&P China ETF (GXC) provide exposure to Chinese equities that are listed on Hong Kong or New York Stock Exchanges. Additionally, a new line of China funds that provide direct access to Chinese A-shares market have recently launched, including China A-shares ETFs, like the db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR) , KraneShares Bosera MSCI China A ETF (KBA) and Market Vectors ChinaAMC A-Share ETF (PEK) . [Big China ETFs Rally, but Investors Hardly Notice]
According to XTF data, there are 170 ex-US country specific ETFs available to investors that track prominent emerging market countries like Brazil, Russia, India and China to frontier, or pre-emerging, economies like Nigeria and Vietnam. The ETF universe does not cover every developing market, or at least not yet.
For more information on developing economies, visit our emerging markets category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.