Assessing Emerging Market ETFs

May 06, 2019

 

It’s now unclear whether a deal will actually materialize following this weekend’s new U.S. threats of more tariffs over Chinese goods resulting from the administration’s mounting frustration at the pace of negotiations.

To some, a no-deal will inevitably lead to a correction in Chinese equity—and the ETFs that own them. But some also argue that any consolidation may be a buying opportunity given that China’s economic growth is said to be picking up pace.

Ongoing India Elections Could Trigger Rally

Another pocket of interesting action these days is India ETFs. One of the largest emerging markets—the “I” in “BRICs,” India—is in the middle of countrywide elections in a process that goes through May 19.

Characterized as the “biggest democratic exercise anywhere on the planet; also the most expensive one, estimated to cost $7 billion” by Gaurav Sinha, asset allocation strategist at WisdomTree, these elections have put India ETFs at center stage.

According to Sinha, incumbent Prime Minister Modi is likely to stay in power, and a win could push Indian equities sharply higher. Funds like the iShares India 50 ETF (INDY), the iShares MSCI India ETF (INDA) and the WisdomTree India Earnings Fund (EPI) are up 6-8% already this year.

 

 

BRICs Gaining

Other BRIC nations—Russia and Brazil—are also in positive territory. It seems that in 2019, buying up BRICs is working well for investors.

A recent Barron’s article pointed out that Russia’s gross domestic product growth has been sluggish, but corporate profits are strong, particularly in financials and consumer-focused names, and funds like the VanEck Vectors Russia ETF (RSX) and the iShares MSCI Russia ETF (ERUS), each up about 15% year-to-date, could see further gains.

In Brazil, a newly minted pro-business administration has fueled hopes of much needed reforms, and more market-friendly policies. The iShares MSCI Brazil Capped ETF (EWZ) is up 7.6% this year.

These various country-specific stories have helped BRIC-focused ETFs—a viable option for investors interested in the region but wanting to diversify single-country risk. The iShares MSCI BRIC ETF (BKF) and the Invesco BRIC ETF (EEB), for example, have outperformed broader funds such as IEMG this year:

 

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