Developed markets are finally back on the up-and-up. Just in time, too, because emerging market ETFs are showing some signs of flattening out. But will that mar their image as a portfolio diversifier and, in the right climate, potential returns enhancer?
The short answer is that unrest in a couple of frontier markets poses a marginal threat to emerging market ETFs, and they’ve apparently not scared investors off for good, according to Money Control.
Some ETF providers are even taking steps to ameliorate any negative impact from the conflicts. David Gardner, head of sales for iShares EMEA, stated that “potentially problematic” companies have been removed from their main emerging market ETFs, such as iShares MSCI Emerging Markets (NYSEArca: EEM).
Several emerging market countries have implemented tighter monetary policies and higher interest rates that were aimed at curbing the rising inflation rates, which have left some investors wondering how much growth could be stunted, reports Meg Handley for U.S. News & World Report.
That said, you can’t exactly count out emerging markets. Dips after periods of strong growth aren’t unusual, particularly in some of the more volatile countries. It’s a risk that ETF investors understand.
Experts agree: they still project emerging economies will expand faster than developed countries. The International Monetary Fund projects developed economies will grow by 2.5% this year while emerging markets could expand by 6.5%.
At this point, however, EEM and Vanguard Emerging Markets (NYSEArca: VWO) are right around their long-term trend lines. The time to get back in – if that’s what you’re looking for – may not be until the negative performance goes positive.
Max Chen contributed to this article.