Investors are edging back into emerging markets, even though worries about the coronavirus’ impact on global economic growth have clouded prospects for the boom-and-bust asset class.
Nearly $730 million flowed back into emerging markets exchange-traded funds (ETFs) in the past week, according to Lipper, after two straight weeks of outflows that accompanied sharp declines in the stocks and currencies of developing countries.
Before the outbreak, emerging markets stocks had steadily climbed since early December as analysts forecast a re-acceleration of global economic growth and the United States and China agreed on a Phase 1 trade deal. Chinese equities make up roughly a third of the weighting in the MSCI Emerging Markets Index.
Emerging markets ETFs have seen a steady stream of money pouring in since late October and have not had outflows on a monthly basis, Lipper data showed.
“The valuations are really compelling, and we were seeing signs of an economic recovery,” said Robert Phipps, director at Per Stirling Capital Management. “Once the coronavirus is put on pause, I think that will become the primary trend again.”
Other financial institutions, including BlackRock, JPMorgan and UBS Global Wealth Management, are also sanguine on the prospects for emerging markets in 2020, even though the asset class has underperformed U.S. stocks for more than a decade.
Emerging markets stocks have been more resilient of late in large part because they have languished for so long, said Michael Purves, chief executive of Tallbacken Capital Advisors.
“There’s not really a case to sell them, because they’re already massively under-owned,” he said.
The economic impact of the coronavirus outbreak in unknown. Some analysts have estimated that China’s yearly gross domestic product growth could fall to between 4% and 5%, down from the 6% annual growth the Chinese government previously estimated.
Reference: Reuters
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