While emerging market ETFs lag behind S&P 500, they register combined net inflows of $6.5 billion. Advisors have concerns over “China-specific risks” and “volatility”. As China forms a large part of emerging markets, several ETFs omit Chinese stocks to avoid these risks. Other options include ETFs owning less volatile Chinese stocks or ETFs providing exposure to the Chinese internet sector with downside protection.
China has imposed export controls on graphite, a key component used in electric vehicle (EV) batteries, starting from 1 December. It cites national security concerns and is not targeting any specific country. The move comes amidst escalating tension in the EV supply chain between Beijing and the West. China, leading the global supply chain of critical minerals, could potentially disrupt the market dynamics and accelerate the search for alternative material sources.
Core Values Alpha (CVA), an affiliate of MSA PowerFunds, has introduced an actively managed exchange-traded fund (ETF) for Chinese equities. The fund invests in high-growth Chinese companies and US companies with substantial revenue from China while prioritizing US values and national security. To this end, it uses a China Risk Scorecard for in-depth risk assessments. The fund believes that carefully navigating China risks can benefit investors amid rising geopolitical complexities.
Despite a projected acceleration of growth from 3.9% to 4.6% in Asia and the Pacific for 2022, experts warn that economic prospects are dimming in the coming years. Factors such as Asia’s aging population, slowing productivity growth, and geoeconomic fragmentation are expected to hinder growth further. However, disinflation is progressing well in Asia, with most countries expected to reach central bank target ranges by 2023.
Emerging markets offer unique investment opportunities, with Mexico ETFs particularly gaining attention due to Mexico’s booming industries and evolving consumer base. Investing in such ETFs enables diversification, offers growth potential, and allows investors to explore opportunities outside of saturated developed nations. Key Mexican ETFs include EWW, which exhibits the resilience of the Mexican market, MEXX – designed for short-term market movements, and FLMX, focusing on large-cap stocks. These ETFs can significantly enhance portfolio diversification and can be used as a hedge against potential stagnation in developed markets.
China and Japan, the world’s second and third largest economies, are heavily interdependent due to historic ties and mutual investments. However, China’s current economic crisis is putting Japan’s recovery at risk. Uncertainty over the impact on the Japanese yen and China’s influence on Japan’s export-dependent economy compound the issue. Additionally, the US’s role as a key driver of the global economy, Japan’s fragile recovery, and potential implications for Japan’s automotive industry underscore the severity of the situation.
Emerging markets (EM) faced a rough Q3 with inflation, the troubled Chinese economy, and rising US yields causing stock declines. A $470 billion wipe-out in EM equities and high sovereign-risk premiums have dampened hopes of EM revival. Experts suggested leveraging ETFs from Direxion Investments depending on the market’s trajectory, while continued resilience of the EM in macroeconomic headwinds could offer some optimism.
FNDE invests in large-cap emerging market stocks through a unique fundamentals-based weighting methodology.The fund has outperformed comparable EM ETFs, reflecting the advantages of its strategy, which also offers a 5% dividend yield.We are bullish on emerging markets and see an upside for FNDE going forward.
In an era of new economic challenges, we expect value investing to trump growth-oriented strategies for investors in Chinese equities.China’s banking system has grown more resilient over the past decade, thanks to prudent regulation.China may be relinquishing its role as the primary engine of the global economy—a role it has played effectively for many years.
CNYA provides access to locally available equities in China, with a focus on financial and industrial sectors.The ETF has exposure to consumer staples and specific companies such as Kweichow Moutai and a lithium-ion battery manufacturer, which may drive secular resilience.But structural risks, including the housing sector and geopolitical tensions, continue to pose challenges for the Chinese economy and the ETF’s outlook.We think the risks that remain are too numerous and too serious to want to take the risk on China at current multiples, despite some strong constituent companies in CNYA.
According to early indicators in July, moderation in business sentiment, both sectoral and consumer confidence are likely reflecting currency volatility in the aftermath of elections, and that’s hinting at some easing in
Growth in India is expected to outpace that of China this year and next – with Indonesia following closely behind in third place among major economies – according to the Organization for Economic Cooperation and Development
What has until recently driven much of China’s growth has been its property and infrastructure sector, and another report this week reminded us why this is an ongoing problem. Deflation is a natural outcome of the problems
Advisors searching for broader approaches to dollar-denominated emerging markets bonds can access the asset class via mutual funds and exchange traded funds with the VanEck Emerging Markets High Yield Bond ETF
