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EEM: Going Against The Grain By Investing In Emerging Markets


  • Emerging market stocks are on a free-fall and the demand for safe-haven asset classes has risen exponentially in the last couple of weeks.
  • COVID-19 is threatening the growth of the global economy but the impact will only last a few months at best.
  • Leading financial institutions have revised their guidance for China's GDP growth in 2020 but still predict an above-5% growth.
  • Being bold is difficult but often is the right thing to do when it comes to investing.

Emerging markets are very attractive despite the outbreak of the new coronavirus.Source

It's easy to say that one has to make unpopular bets to earn alpha returns in equity markets. Putting this into action, however, can be a very challenging task because of our tendency to seek approval of other investors, which eventually results in following the crowd rather than making bold decisions. The subject of this analysis is not to identify and discuss a method as to how to overcome this barrier but to analyze one such unloved bet that could deliver stellar returns; emerging market equities. My preferred ETF to invest in this asset class is the iShares MSCI Emerging Markets ETF (NYSEARCA:EEM). Naturally, this needs careful evaluation as the fund is more geared toward Chinese equities, and the largest economic impact of the new COVID-19 virus will be felt by Chinese companies. After carefully assessing the prospects, the valuation multiples, and a few other macroeconomic developments, I find emerging markets to provide the best value for money.

This is not the first time I'm writing about emerging markets this year. On January 14, I published an article outlining why I believe EEM will deliver stellar returns in the year ahead. In particular, my analysis found that the demographic characteristics, the easing trade tensions, higher economic growth in comparison to developed countries, the supportive monetary policy decisions, and the cheap valuation will push emerging equity markets higher this year. What prompted me to evaluate the prospects once again is the outbreak of the new coronavirus.

An assessment of COVID-19's impact on emerging countries

It was China at first, but now it is South Korea and Italy. Soon, it could be many Asian countries, including India. Even though the World Health Organization has so far not classified the spread of the new virus as a global pandemic, it could soon do so considering the present status

This article was written by

Dilantha De Silva profile picture
Leader of Beat Billions
Uncover the untapped potential of small-cap stocks
I am Dilantha De Silva, an investment analyst with 8+ years in the investment management industry. Before becoming an independent publisher, I worked as a buy-side analyst in a leading boutique wealth management firm in Dubai where I dedicated my time to identifying U.S. small-cap stocks for the funds managed by the firm. I am the founder of Beat Billions, a premium Investing Group on Seeking Alpha focused on identifying alpha-generating thinly followed stocks in the market. I am a CFA Level III candidate and an Associate Member of the Chartered Institute for Securities and Investment (UK).

Analyst’s Disclosure: I am/we are long EEM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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