Don’t Give Up On Emerging Market ETFs

December 27, 2016

Broad emerging market ETFs have faced a steep correction in recent weeks, triggered largely by the outcome of the U.S. presidential election last month and the ongoing strengthening of the dollar.

In its totality, it looks like 2016 will close with funds like the iShares MSCI Emerging Markets ETF (EEM) and the Vanguard FTSE Emerging Markets ETF (VWO) comfortably in the black despite the recent plunge, just not as much in the black as investors might have expected following an earlier-year performance that suggested emerging market ETFs were finally rising from multiyear lows.

The chart below shows how these ETFs have done relative to the S&P 500: 

Looking ahead, however, it seems the temporary setback in emerging market ETFs could prove to be just that: temporary.

What Market Experts Say

Consider, for instance, Mark Dow’s views—founder of Dow Global Advisors in Laguna Beach, California, and someone with 20 years of experience as a policymaker, investor and trader focused on global macro and emerging markets.

Dow had been calling for the formation of a bottom in emerging markets all year, arguing that currencies had gotten stretched on the downside, and saying that investors should brace for up and down action until the emerging market fundamentals start to get better. According to him, that improvement would come as a result of clearer U.S. dollar and U.S. interest rate policies, as well as resurgence of growth in the region.

Today he is still a believer in the ongoing bottoming process despite the correction, and in the growing opportunity in the space.


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