Emerging Market Stocks Heat Up, Post 5% Gains to Start 2017 2
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Calm after the storm

November 8 and the days following ushered in a degree of unease for emerging market equities. The iShares MSCI Emerging Markets ETF (EEM) and the Vanguard FTSE Emerging Markets ETF (VWO) – the two most tracked funds investing in emerging markets – were down 8.5% and 7.6% respectively by November 14, the week following the election of Donald Trump as the 45th President of the U.S.

 

2017 has been good so far

After a somber end to 2016, emerging markets have been attracting capital inflows this year. At market close on 23 January, the EEM and VWO were up 5.57% and 4.89% respectively. Compare this with the SPDR S&P 500 ETF (SPY) and the iShares MSCI Eurozone ETF (EZU), which are up just 1.17% and 2.54% respectively.

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CNBC, quoting data from EPFR Global, reported that “actively managed emerging market equity funds saw their first net inflows in 11 weeks, while passive funds saw their first inflows in four weeks.”

The emerging market ETFs have had a superb return performance in the past one year as well with the EEM and VWO up 31.4% and 33% respectively.

2017 will by no means be an easy year for emerging markets. With Trump just having assumed office, emerging market investors are keep an close eye on policy announcements. Going on the president’s inauguration speech, Trump can be expected to move in the direction of trade protectionism, at least initially.

In time, though, the administration may begin to see certain trade tariffs as a double-edged sword that can cut both ways with trade partners imposing trade restrictions in retaliation. Regardless, due to the unchartered territory these markets face, 2017 is expected to be somewhat tumultuous for emerging markets resulting in a volatile investment environment in those countries.

In the next article, let’s look at one factor emanating from the US which could be beneficial to emerging markets.

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