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IMF Concerns Could Mean More Woes for EM ETFs


Emerging market exchange traded funds may still struggle this year as the International Monetary Fund warns of a potential slowdown despite upwardly revising its global economic outlook.

The IMF increased its 2014 global growth estimate to 3.7%, up from its previous 3.6% projection, reports Ian Talley for MarketWatch.

Nevertheless, it is “a weak and uneven recovery,” IMF Chief Economist Olivier Blanchard said.

Specifically, Blanchard points out that advanced economies are fueling global growth while emerging markets largely slow. The IMF is concerned that higher borrowing rates, notably due to Fed tightening, could send global shocks through emerging market economies.

Blanchard warned that its move would cause “complex capital movements across countries” and “the evidence from last year is that emerging market economies with weak macro frameworks may be most affected,” reports Chris Giles for Financial Times.

The IMF downgraded its outlook on many major emerging economies. For instance, it cut Russia’s growth projection by 100 basis points to 2% and pared Brazil’s outlook by 0.2 percentage point to 2.3%. The Russia country-specific ETF, Market Vectors Russia ETF (RSX) , has dipped 6.7% over the past year while the iShares MSCI Brazil Capped ETF (EWZ) fell 23.3%.

On the other hand, the IMF raised its outlook on China by a third of a percent to 7.5%. The iShares China Large-Cap ETF (FXI) has decreased 10.7% over the past year. [Getting Selective With Emerging Markets]

Broad emerging market ETFs had a lackluster year. The iShares MSCI Emerging Markets ETF’s (EEM) is down 9% over the past year while Vanguard Emerging Markets ETF (VWO) declined 10%. [An Ominous Chart for Emerging Markets]

For more information on developing economies, visit our emerging markets category.

Max Chen contributed to this article. Tom Lydon’s clients own shares of EEM.

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.