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Emerging Market ETFs Look Stable Amid Wall Street Bloodbath

U.S. Federal Reserve Chair Jerome Powell warned on May 13 of the threat of a long-drawn recession resulting from the coronavirus outbreak and suggested Congress and the White House to act further to counter the lasting adverse economic impact. The outlook has been described by Powell as “highly uncertain and subject to significant downside risks,” as quoted on The Wall Street Journal.

Powell spoke a day after House Speaker Nancy Pelosi, a California Democrat, proposed a $3 trillion financial package that would direct money to small businesses, state and local governments, and other struggling institutions. If this was not enough, the director of the National Institute of Allergy and Infectious Diseases Fauci said U.S. reopening could trigger the outbreak.

Following the Fed remarks, Wall Street, which has been pretty resilient to the coronavirus scare since late March, suffered a bloodbath on May 13. SPDR S&P 500 ETF Trust SPY (down 1.8%), SPDR Dow Jones Industrial Average ETF Trust DIA (down 2.23%), Invesco QQQ Trust (QQQ) (down 1.25%) and iShares Russell 2000 ETF IWM (3.43%) lost heavily on the day.

Emerging Markets Relatively Steady

Surprisingly,the emerging market pack looked better-positioned amid the Wall Street crash. Emerging market ETFiShares MSCI Emerging Markets ETF (EEM) was off 0.19% on May 13. Some positive developments in key emerging economies made this possible (read: Q1 ETF Asset Report: What's Hot, What's Not).

Chinese stocks held steady lately. The Shanghai composite is down 5.2% this year versus the S&P 500 which is down 11.1%, as of Tuesday’s close, as quoted on CNBC. For investment funds that are focused on global emerging market stocks, the average allocation to China is 34%, while that for funds invested in Asian stocks excluding Japan, the China allocation is even higher at 38%, per a CNBC article (read: Is it the Right Time to Buy China ETFs? Let's Explore). 

China’s A-Shares are going mainstream and becoming part of global investment portfolios, post MSCI’s decision to include in its benchmark emerging markets index. Another key emerging economy India announced a huge stimulus plan worth 20 trillion rupees ($265 billion), an estimated 10% of gross domestic product, per Bloomberg.

Since oil prices have staged a feeble rebound in recent weeks after a massive dive in mid-Apr, some oil-exporting emerging markets like Mexico and Russia also gained ground and saw currencies recovering. Mexico also revealed plans to reopen some portions of its economy from May 18. This includes restarting some automotive factories, which is Mexico’s one of the key sectors. Mining, construction and manufacturing of transport equipment industries of Mexico will also be considered essential activities, per Reuters.

Last but not the least, though the greenback has been gaining strength this year, the likelihood of prolonged U.S. economic weakness may hold back some strength. If this happens, emerging market stocks and ETFs should benefit ahead.

ETFs in Focus

Below we highlight a few emerging market ETFs that were among the outperformers past week.

Emerging Markets Internet & Ecommerce ETF EMQQ

Past Week: Up 5.1%

On May 13: Up 1.0%

iShares MSCI Turkey ETF TUR 

Past Week: Up 5.1%

On May 13: Up 0.91%

Nuveen ESG Emerging Markets Equity ETF NUEM

Past Week: Up 2.4%

On May 13: Down 0.5%

Vanguard FTSE Emerging Markets ETF VWO

Past Week: Up 1.8%

On May 13: Down 0.3%

Schwab Emerging Markets Equity ETF SCHE

Past Week: Up 1.8%

On May 13: Down 0.4%

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SPDR SP 500 ETF (SPY): ETF Research Reports
 
iShares MSCI Emerging Markets ETF (EEM): ETF Research Reports
 
iShares Russell 2000 ETF (IWM): ETF Research Reports
 
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
Vanguard FTSE Emerging Markets ETF (VWO): ETF Research Reports
 
Schwab Emerging Markets Equity ETF (SCHE): ETF Research Reports
 
EMQQ The Emerging Markets Internet Ecommerce ETF (EMQQ): ETF Research Reports
 
iShares MSCI Turkey ETF (TUR): ETF Research Reports
 
Nuveen ESG Emerging Markets Equity ETF (NUEM): ETF Research Reports
 
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Zacks Investment Research
 
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