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Are Emerging Markets Investors Eagerly Anticipating a Rate Cut?

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2018 saw four interest rate hikes which helped decimate the emerging markets (EM) space, but 2019 thus far has been a year of redemption and more strength could be on the way if analysts are correct in forecasting an interest rate cut this week.

With U.S. President Donald Trump leading the charge in clamoring for lower interest rates, the EM space is likely to join in on the demands. A number of economists and analysts alike don’t expect a rate cut to necessarily happen in June, but a dovish message from Fed Chair Jerome Powell could clear the runway for a rate cut in July.

“Right now, they’ll just give a very dovish message that leans toward a July rate cut,” said Joseph LaVorgna, chief economist for the Americas at Natixis. “The market is worried enough about weakness in China, inflation undershooting and the possibility that tariffs disrupt the global supply chain that it’s hard for me not to think the Fed won’t be moving faster than people thought.”

The shift in forecasts have come as a result of the Labor Department revealing recently that only 75,000 jobs were created in May, which fell below expectations, and could be a sign that the U.S. economy could be on the verge of a slowdown. Nonetheless, the unemployment rate remained at a generational low of 3.6 percent.

China Continues to Lead EM

Whether a rate cut does come in June or not, the second largest economy doesn’t seem to be suffering from any ill effects of the trade impasse with the United States as the country’s overall trade surplus was about $42 billion–double the $20.5 billion expected by economists polled by Reuters. The data comes just as the International Monetary Fund (IMF) lowered the growth expectations for China through the rest of the year.

The IMF projected a growth forecast of 6.3 percent, lowering their initial expected growth rate of 6.2 percent. They’re expecting that to slow further in 2020 to 6 percent and even lower to 5.5 percent by the year 2024.

An Irish ETF That Meshes EM and Ecommerce

While 2019 thus far has seen the reemergence of EM, investors are sifting through the plethora of opportunities the EM space has to offer, such as niche ETFs that mesh EM with other sectors like ecommerce. In a number of these areas, the internet is still growing in its adoption as the infrastructure in EM countries are lacking compared to that of developed markets.

EMQQ Emerging Markets and Ecommerce UCITS ETF, is a UCITS compliant Exchange Traded Fund domiciled in Ireland. The fund tracks an index of leading internet and Ecommerce companies that serve emerging markets, including search engines, online retailers, social networks, online video, online gaming, e-payment systems and online travel.

Overall, the fund’s strategy is to seek to provide exposure to the growth of online consumption in the developing world.

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