Investors pour billions into emerging markets ETFs after Trump’s April tariff move
Emerging-market assets have pulled ahead of developed peers this year, supported by investor flows, favourable inflation, and more conservative fiscal management, reported Bloomberg.
Fund managers from Fidelity International, T. Rowe Price, and Ninety One Plc said the prospect of Federal Reserve rate cuts, a weaker US dollar, and easing local monetary policy are fuelling gains.
Analysts expect the MSCI Emerging Markets Index to rise about 15 percent over the next 12 months, compared with a 10 percent increase for its developed counterpart.
Since US President Donald Trump’s “Liberation Day” tariff announcement on April 2, investors have poured US$5.8bn into the iShares Core MSCI Emerging Markets ETF, equal to 5.8 percent of its total assets.
By comparison, the Vanguard FTSE Developed Market ETF has drawn US$5.6bn, about 3.3 percent of its holdings.
Jerome Powell added momentum to this trend when he signalled at Jackson Hole that the US Federal Reserve is on track for a September rate cut.
Investors increased bets that easing will come at the September 16–17 meeting.
Since April 2, both the MSCI Emerging Markets Index and its developed peer have climbed about 14 percent.
Bond returns have also been close, with a Bloomberg gauge of emerging-market debt gaining 4 percent versus 3 percent for developed markets.
George Efstathopoulos, a fund manager at Fidelity in Singapore, said “EM equities are likely to outperform as they enjoy the tailwinds of easing local monetary policy across most markets boosting domestic lending and consumption but also a weaker dollar.”
He added that the Federal Reserve, as the most significant central bank, will most likely resume easing in the coming quarters.
Archie Hart, a fund manager at Ninety One in London, pointed to fiscal prudence as a defining factor.
“If we look at policymakers in emerging markets, they’re conservative, they’re disciplined by the market, they’re pragmatic, so we don’t see these huge unsustainable fiscal deficits that you see in developed markets,” he said.
T. Rowe Price highlighted valuations as another driver.
“We have an overweight stance on emerging-market equities in our multi-asset portfolios as valuations remain more reasonable than those in developed markets, coupled with higher earnings growth prospects,” said portfolio manager Thomas Poullaouec.
He added that Latin American currencies, including the Brazilian real, remain attractive due to higher yields and improving fiscal sentiment, although much of the upside in EM currencies may already be priced in.
Falling inflation provides further support.
The Citi Inflation Surprise Index for emerging markets has averaged minus 19 this year, compared with minus 12 for Group-of-10 economies in July.
Efstathopoulos noted that “the tailwinds that have lifted emerging market local-currency bonds in the past year remain in place, such as falling inflation and mostly unalarming fiscal deficits.”
He contrasted this with developed-market bonds, which still face challenges from growing debt levels and large fiscal deficits.
