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5 Emerging Markets & Its ETFs Defying the Losing Trend in 2022
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Emerging market (EM) ETF investing is currently in a tight spot. The dollar strength, rising rates in the United States, capital outflows, a slump in China’s economy, rising inflation and a debacle in Russia investing have all added up to the EM crisis. Emerging market ETF Vanguard FTSE Emerging Markets ETF (VWO - Free Report) is off 18% this year and has lost 10.5% past month.
Thanks to sky-high U.S. inflation and a hawkish Fed, the greenback has been steady this year, with 9.4% year-to-date, 4.9% monthly and 15% yearly gains in Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) . As a result, the U.S. dollar index rose to fresh two-decade highs and most emerging economies’ currencies have been falling to multi-year lows against the greenback.
Now, developing or emerging countries must tighten their monetary policies to counter declines in their own currencies. Otherwise, it would raise inflation of EMs and push up the cost of servicing dollar-denominated debt. Dollar appreciation has pushed an emerging currency index down 3.5% this year to an 18-month trough, per Reuters.
Most emerging economies are commodity-rich, especially Latin America. This favored such countries in the initial phase of this year. But as the recession fear took the world markets in its grip, the shine started fading from Latin America too. The copper-reliant Chile's peso gained 8% in the first quarter, only to fall 10% since then, per Reuters.
Dollar strength also tightened EMs’ ability to obtain credit. An emerging market’s financial conditions index from Goldman Sachs is near the tightest since 2008, up some 300 bps this year, per Reuters. No wonder, such an economic backdrop would slow down EMs’ growth considerably. As a result, EM ETFs have fallen massively this year.
Still, there are some EM ETFs that are up at least 4% this year against a 17.4% loss seen in the SPDR S&P 500 ETF (SPY - Free Report) . Following are those EM ETFs. However, all these country ETFs gained due to oil strength. Most of these regions like Saudi, Qatar, UAE and Nigeria are oil-exporting and hence gained a lot from a massive oil rally this year. Brent crude ETF (BNO - Free Report) is up 48.2% this year.
There is the only exception Turkey. Borsa Istanbul’s BIST 100 Index hit the highest level this year since data first became available in 1988, per data from Investing.com, as quoted on al-monitor.com. The Central Bank of Turkey paused its easing cycle in recent times and left the key one-week repo rate steady at 14%. Such a high rate has probably gone in favor for its financial companies.
ETFs in Focus
Saudi Arabia
Franklin FTSE Saudi Arabia ETF (FLSA - Free Report) – Up 20.8% YTD
iShares MSCI Saudi Arabia ETF (KSA - Free Report) – Up 18.5% YTD
Image: Bigstock
5 Emerging Markets & Its ETFs Defying the Losing Trend in 2022
Emerging market (EM) ETF investing is currently in a tight spot. The dollar strength, rising rates in the United States, capital outflows, a slump in China’s economy, rising inflation and a debacle in Russia investing have all added up to the EM crisis. Emerging market ETF Vanguard FTSE Emerging Markets ETF (VWO - Free Report) is off 18% this year and has lost 10.5% past month.
Thanks to sky-high U.S. inflation and a hawkish Fed, the greenback has been steady this year, with 9.4% year-to-date, 4.9% monthly and 15% yearly gains in Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) . As a result, the U.S. dollar index rose to fresh two-decade highs and most emerging economies’ currencies have been falling to multi-year lows against the greenback.
Now, developing or emerging countries must tighten their monetary policies to counter declines in their own currencies. Otherwise, it would raise inflation of EMs and push up the cost of servicing dollar-denominated debt. Dollar appreciation has pushed an emerging currency index down 3.5% this year to an 18-month trough, per Reuters.
Most emerging economies are commodity-rich, especially Latin America. This favored such countries in the initial phase of this year. But as the recession fear took the world markets in its grip, the shine started fading from Latin America too. The copper-reliant Chile's peso gained 8% in the first quarter, only to fall 10% since then, per Reuters.
Dollar strength also tightened EMs’ ability to obtain credit. An emerging market’s financial conditions index from Goldman Sachs is near the tightest since 2008, up some 300 bps this year, per Reuters. No wonder, such an economic backdrop would slow down EMs’ growth considerably. As a result, EM ETFs have fallen massively this year.
Still, there are some EM ETFs that are up at least 4% this year against a 17.4% loss seen in the SPDR S&P 500 ETF (SPY - Free Report) . Following are those EM ETFs. However, all these country ETFs gained due to oil strength. Most of these regions like Saudi, Qatar, UAE and Nigeria are oil-exporting and hence gained a lot from a massive oil rally this year. Brent crude ETF (BNO - Free Report) is up 48.2% this year.
There is the only exception Turkey. Borsa Istanbul’s BIST 100 Index hit the highest level this year since data first became available in 1988, per data from Investing.com, as quoted on al-monitor.com. The Central Bank of Turkey paused its easing cycle in recent times and left the key one-week repo rate steady at 14%. Such a high rate has probably gone in favor for its financial companies.
ETFs in Focus
Saudi Arabia
Franklin FTSE Saudi Arabia ETF (FLSA - Free Report) – Up 20.8% YTD
iShares MSCI Saudi Arabia ETF (KSA - Free Report) – Up 18.5% YTD
Turkey
iShares MSCI Turkey ETF (TUR - Free Report) – Up 16.5%
Qatar
iShares MSCI Qatar ETF (QAT - Free Report) – Up 14.7%
UAE
iShares MSCI UAE ETF (UAE - Free Report) – Up 8.7%
Nigeria
Global X MSCI Nigeria ETF – Up 4.1%