This article was originally published on ETFTrends.com.
The strong dollar, political volatility in Brazil, trade wars with China and chaos in Turkey are among the factors punishing emerging markets assets this year. Year-to-date, the widely followed MSCI Emerging Markets Index is lower by 12.50%.
Some investors are not waiting around to see what's next for developing economies. This year, investors have yanked $5.12 billion from the iShares MSCI Emerging Markets ETF (EEM) , which tries to reflect the performance of the benchmark MSCI Emerging Markets Index. Only three US-listed ETFs have seen larger year-to-date outflows.
“Economies as varied as Argentina, Russia, South Africa and Turkey are facing the maelstrom, but each has its own reasons for falling out of favor, and the turmoil has yet to raise anxiety about the world’s biggest economies and markets,” reports The New York Times.
Some single-country emerging markets exchange traded funds are feeling investors' wrath, too. For example, the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) has bled $1.09 billion in the third quarter. Only two ETFs have larger third-quarter outflows.
Despite the difficulty in predicting the next president, there are still constructive drivers that should benefit stocks over the next few months. For instance, J.P. Morgan expects Brazil to post the best corporate earnings growth in 2018 among Latin American peers. Additionally, a number of its industries are linked to commodities, which benefit from a weaker real currency.
Turkey has been a significant drag on emerging markets this year and the iShares MSCI Turkey ETF (TUR) is one of this year’s worst-performing emerging markets exchange traded funds.
“President Recep Tayyip Erdogan’s government has been spending, too, subsidizing big-ticket infrastructure projects,” according to the Times. “All that money owed in other currencies makes the collapse of the Turkish lira particularly problematic. The currency has been sinking steadily for years, resulting in a persistently high rate of inflation, but the sell-off turned into a rout after Mr. Erdogan was re-elected in June and given broad new powers that strengthened his control over the nation.”
Some analysts have recently trimmed Turkey's economic growth estimates. South Africa is another emerging markets offender as highlighted by a year-to-date decline of almost 27% for the iShares MSCI South Africa ETF (NYSEArca: EZA ) .
“South Africa’s currency, the rand, is down by roughly 18 percent this year, and second-quarter data this month showed that South Africa was already in a recession. That further complicates matters, as the cure for the weak rand — higher interest rates from the central bank — could make the downturn even worse,” according to the Times.
For more information on the Brazilian markets, visit our Brazil category.
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