Emerging markets attract $30 bn in ETF despite big banks unease

Big banks say 2019 emerging markets equity traded funds’ (ETFs) rally may have gone too far but traders are putting money right in there anyway.

An emerging market economy is a nation’s economy that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of market exchange and regulatory body. They are also called developing nations.

The 10 big emerging markets (BEM) economies are (alphabetically ordered): Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea and Turkey. Egypt, Iran, Nigeria, Pakistan, Russia, Saudi Arabia, Taiwan, and Thailand are other major emerging markets.

Inflows to U.S.-listed exchange-traded funds in developing nations totaled $3.68 billion in the week ended Feb. 8, bringing the current stretch to $30.3 billion, according to data compiled by Bloomberg.

Meantime, Societe Generale, Bank of America and Wells Fargo have all questioned how much value is still left for the asset class after a strong start to 2019.

However, the outlook for a more dovish Federal Reserve policy sparked resurgence into riskier assets this year, boosting emerging-market currencies and stocks. Yet the host of threats that sent global equities into a tailspin at the end of 2018 bubbled back to the surface.

There is concern that the U.S. and China wont reach a trade deal before the March 1 deadline for higher tariffs, while warnings mount that the dispute is hurting global growth and corporate profits.

The rally may continue, “but definitely at a more moderate pace as macro fundamentals are not improving,” Guillaume Tresca, a senior emerging-market strategist at Credit Agricole in Paris, told Bloomberg.

Some analysts, however, say there is still value for the asset class. This year’s gain in developing-nation stocks sent valuations back above their five-year average. Still, after posting the best month since 2016 in January, the MSCI gauge of emerging-market shares has slid 1.4 percent so far in February — underperforming a measure of developed-country equities.

The asset class looks “attractive technically,” according to Christian Fromhertz, chief executive officer of Tribeca Trade Group in New York. “Most of the bad news is baked in.”

The $61 billion Vanguard FTSE Emerging Markets ETF, the biggest exchange-traded fund for developing-nation stocks, received the biggest inflow since September 2011. Meantime, the $2.5 billion SPDR Portfolio S&P Emerging Markets ETF, which tracks the S&P Emerging BMI Index, saw inflows equivalent to 10.7 percent of its market capitalisation.