Emerging Markets have picked up analyst interest this week as markets hunger to build on a mini-rally on the stock market that may or may not have already digested rising rates and recessionary headwinds. That interest has also elicited “diametrically opposed” views from Goldman Sachs and Morgan Stanley as to whether EM equities will continue to decline or are now bargain buys, prompting investors to consider EM equities ETFs.
Emerging markets equities have had a dismal year due to inflation, geopolitical risks, and energy costs, seeing the MSCI Emerging Markets Index return -27.2% YTD compared to just -2.1% over the last three years.
Goldman Sachs analysts believe that while EM equities are to rise 15% over the next year based on the MSCI EM Index, the floor is still unclear. Morgan Stanley’s analysts disagree, arguing the floor has been reached and the only way is up, with a similar price projection for the MSCI EM Index.
Investors looking to revisit their equities holdings may want to revisit EM equities ETFs, with some bearish and other bullish. Regardless, EM equities have some momentum, having avoided much of the West’s inflation.
Looking long term, investors should not ignore the prospect of e-commerce and smartphones reaching hundreds of millions of people in developing countries with the Emerging Markets Internet & Ecommerce ETF (EMQQ).
EMQQ tracks the cap-weighted EMQQ The Emerging Markets Internet & Ecommerce Index, only requiring most of a firm’s revenues to come from targets firms engaged in internet service, retail, broadcasting and media, and online advertising, gaming, travel, search engines, and social media in emerging markets with minimum size and liquidity. EMQQ charges an 86 basis point fee and has seen its net flows increase in recent weeks.
For those feeling bullish, the ALPS Emerging Sector Dividend Dogs ETF (EDOG) combines large-cap emerging markets equities with dividends via the S-Network Emerging Sector Dividend Dogs Index. EDOG charges a 60 basis point fee with one-month returns of 2.4% compared to the one-month ETF Database Category Average return of -2.7%, according to VettaFi.
The Invesco S&P Emerging Markets Momentum ETF (EEMO) may appeal to more volatility-hesitant investors following EM equities. EEMO tracks the S&P Momentum Emerging Markets Plus Large Midcap Index, which measures the percentage change in stock prices over one year and excludes the last month before adjusting for volatility. The index then holds the top 20% based on those price changes. EEMO charges a 31 basis point fee, having returned 2.1% over one month.
On the Goldman side of the argument are those who believe EM equities have yet to reach the bottom, and those investors might watch the Direxion Daily MSCI Emerging Markets Bear 3X Shares ETF (EDZ), which targets 3x returns on a short-term bear approach to the MSCI EM Index. EDZ has returned 7.7% over one month and 40.4% over three months, compared to -8.7% and 4% for the ETF Database Category Average, respectively, charging a 100 basis point fee.
Those wanting a slightly less bearish strategy for the MSCI EM Index may also examine the ProShares UltraShort MSCI Emerging Markets ETF (EEV), which invests for 2x daily short leverage and requires daily tactical moves given the volatility of daily leveraged strategies. EEV has returned 5.77% over one month and 26.1% over three months compared to -8.7% and 4% for the category, respectively, charging a 95 basis point fee.
For more news, information, and strategy, visit the Emerging Markets Channel.
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