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.
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