Emerging markets have been struggling for quite some time now. China's economic problems are at the heart of the emerging markets' woes. This along with weak emerging market currencies, a strong U.S. dollar and falling oil prices have resulted in a massive sell-off in emerging market stocks for quite some time now.
Last week was particularly disastrous for emerging market ETFs as outflows from these funds were approximately $1.17 billion, according to data put together by Bloomberg. Last week's outflow along with outflow of $2.12 billion in the week before that brings total outflow till January third week to $3.9 billion. Outflows of this magnitude have not been witnessed since August 2015.
As per etf.com, iShares MSCI Emerging Markets (NYSEARCA:EEM) alone recorded net outflows of approximately $1.4 billion in the week ended January 22.
According to Bloomberg, China and Hong Kong witnessed the biggest outflow, primarily from stock funds. Withdrawal from China and Hong Kong funds reached $328.1 million last week, compared with redemptions of $146.8 million in the previous week. After a series of downbeat data flows from China, investors are now skeptical of the country's ability to deliver above-par growth numbers. Meanwhile, the recent currency devaluation has not helped its case. While it can be argued that a weaker currency may help strengthen China's sagging economy given its high exports, the popularity of dollar-denominated debt among domestic companies in China will make it more expensive to service the obligations. These factors are encouraging investors to flee from China in order to avoid further losses.
Taiwan experienced the second biggest outflow, all from stock funds. Investors pulled back $185.1 million from this country's ETFs last week, piling upon the $302.8 million witnessed in the previous week. As the Taiwanese economy thrives on exports, investors could be exiting the market on fears of it losing out to China on currency competitiveness.
Below we highlight three broader emerging market ETFs that have considerable exposure in China and Taiwan. These ETFs are expected to remain in focus if outflows from emerging markets continue in the coming days.
BLDRS Emerging Markets 50 ADR ETF (NASDAQ:ADRE) - 43% weight in China
This ETF tracks the BNY Emerging Markets 50 ADR Index, which is capitalization-weighted and comprises approximately 50 emerging market-based depositary receipts. The fund has the highest exposure to China (43%), followed by Taiwan (14.5%). It has amassed roughly $108.6 million in its asset base while it trades in a volume of roughly 15,459 shares a day. It charges 30 bps in fees from investors per year and currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
SPDR S&P Emerging Asia Pacific ETF (NYSEARCA:GMF) - 44.5% weight in China
This ETF follows the S&P Asia Pacific Emerging BMI Index and offers exposure to the emerging economies of the region. It is a large cap centric fund, with the top two sectors - financials and information technology - collectively accounting for more than half of the portfolio. From a country look, the Chinese firms dominate the portfolio at 44.5%, followed by Taiwan (20.4%) and India (18.3%). The ETF has amassed $347.4 million in its asset base with average daily volume of 86,146. It charges 49 bps in annual fees. The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
SPDR S&P Emerging Markets Dividend ETF (NYSEARCA:EDIV) - 29% weight in Taiwan
This ETF provides exposure to the stocks from emerging market countries that offer high dividend yields by tracking the S&P Emerging Markets Dividend Opportunities Index. Taiwan accounts for 29% of the portfolio while South Africa and Brazil round off the next two countries with double-digit allocation each. It has accumulated $204.7 million in its assets base and trades in average daily volume of roughly 123,646 shares. It charges 49 bps in fees per year and carries a Zacks Rank #3 with a Medium risk outlook.