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Fed Remains Key For Emerging Markets ETFs

This article was originally published on ETFTrends.com.

After slumping last year, the widely followed MSCI Emerging Markets Index is up about 10% this year and a more dovish Federal Reserve is a big reason why.

Despite the deep declines in emerging markets last year, with respect to value compared to price, many of these plays from abroad present a profitable opportunity that can be realized, especially if China and the U.S. ameliorate their trade differences.

The iShares Core MSCI Emerging Markets ETF (IEMG) is off to a solid this year and remains a prolific asset gatherer. Recent data points indicate traders are buying some marquee ETFs tracking developing economies. After the recent pullback in the equities market, bargain hunters may look to beleaguered emerging market stocks and region-related ETFs for value. Indeed, there is a value proposition to be had with emerging market stocks.

IEMG and other emerging markets ETFs rallied Thursday following some dovish Fed commentary.

“The Fed matched investors’ expectations in leaving borrowing costs unchanged but its signalling of an extended pause on rate hikes softened the dollar. That set the stage for broad strength among emerging markets currencies and bonds, ahead of the end of U.S.-China trade talks,” reports Reuters.

A New View

While the majority of investors might be driven away by the red prices in emerging markets, some market observers believe they should be looked at as substantial markdowns, especially if trade negotiations between the U.S. and China result into something materially positive–that’s what emerging markets bettors are essentially banking on.

Central and Eastern European (CEE) emerging markets are among the developing economies poised to benefit if the Fed remains dovish and the dollar retreats.

“Besides a weaker U.S. dollar, CEE countries should benefit this year from more favorable monetary policy. A number of central banks are expected to cut rates in 2019, including Turkey’s, which could lower them from 24 percent to 18 percent, according to Credit Suisse. Russia is also expected to ease, though likely by only 50 basis points,” according to Forbes.

Investors have added $3.60 billion to IEMG this year, tops among all US-listed ETFs.

For more information on global markets, visit our global ETFs category.

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