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Exchange traded funds following broad emerging markets indexes are essentially flat for the year as they face inflationary pressures and a slowdown after the natural disasters in Japan. Yet investors are hoping emerging market economies will drive the world economy.

Emerging market growth may have slowed to its weakest levels in two years during the second quarter, reports Mike Cohen for Bloomberg. As revealed from a survey of purchasing managers, the HSBC Emerging Markets Index — which tracks more than 5,000 companies — dropped from 55 to 54.2 in the last three months.

“After a strong rebound in the immediate aftermath of the global financial crisis, the pace of activity in the emerging markets has faded,” commented Stephen King, HSBC’s chief economist, in the report. “In many parts of the emerging world, there has been a noticeable reduction in the growth of export orders.”

“Rates of production growth eased across the majority of manufacturing sectors monitored by the survey, with South Africa and Singapore the two exceptions,” according to HSBC. “China saw growth slow to the least marked in nine quarters while output rose at the weakest rates for two quarters in Taiwan and South Korea. Even India recorded a slower rise in manufacturing output, although the rate of growth remained substantial.”

Looking ahead, King believes that the emerging markets will be drivers in the global economy, according to CNBC.

“The longer term story is all about the connection between the emerging market countries and those trade flows beginning to expand from a very low base,” remarked King. “These are going to transform emerging nations in the years ahead and even though the US and Europe are quite weak, emerging markets will drive global activity in the next few years.”

The International Monetary Fund estimates that developing economies will expand 6.6% this year.

iShares MSCI Emerging Markets Index (NYSEARCA:EEM)

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Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO)

Max Chen contributed to this article.

Disclosure: None

Source: Emerging Markets Continue to Power Global Growth