The year so far has been caught up with high inflationary pressure across the world due to supply-chain issues, the Russia-Ukraine war, high energy prices, a commodity super-cycle, a super-hawkish Fed, rising rates across the globe as central banks have been tightening policies to rein in inflation, risk-off trade sentiments and a global market crash. The S&P 500 is off 17.9% so far this year (as of Jun 24, 2022).

The S&P 500 and the Nasdaq have entered into correction territory this year as the recessionary fears flared up. The Fed started rate hikes this year and had enacted a 150-bp rise so far this year, which actually caused recessionary fears. iShares MSCI Emerging Markets ETF EEM is off 16.8%.

The broader emerging markets were hurt badly mainly due to pain in Chinese equities. China ETFs were hit hard earlier in the year due to stringent regulatory scrutiny along with tight COVID-control measures and the resultant lockdown. Chinese tech equities started rebounding from late April as the nation’s top political leaders planned on Friday to boost economic stimulus to promote growth. There could also be easing of the continued clampdown on tech firms.

A stronger greenback also hurt emerging market ETFs. Most emerging economies’ currencies have been falling to multi-year lows against the greenback. Dollar strength also tightened EMs’ ability to obtain credit.

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 to an 18-month trough, per Reuters. WisdomTree Emerging Currency Strategy Fund CEW is off 3.5%.

Against this backdrop, below we highlight a few emerging ETFs that breezed past the S&P 500 as well as the broader emerging market ETF this year.

ETFs in Focus

iShares MSCI Turkey ETF TUR – Up 5.9%

Franklin FTSE Saudi Arabia ETF FLSA – Up 3%

iShares MSCI Qatar ETF QAT – Up 1.3%

Global X MSCI Nigeria ETF (NGE) – Down 3.8%

Franklin FTSE South Africa ETF FLZA – Down 6%

How They Rallied?

Countries like Saudi, Qatar, Nigeria are oil rich. These countries are oil-exporting and hence gained a lot from a massive oil rally this year. Brent crude ETF BNO is up 56% this year. There is a few exceptions like 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. Meanwhile, South Africa also fared better compared with other countries. The country is rich in metals. A commodity rally probably have put South Africa in a better-off position.

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