The Emerging Markets ETF Faces Many Challeges Ahead
“Last Month, I Wrote here that weakness in the BRIC markets — Brazil, Russia, India and China — was a harbinger of bad things to come elsewhere. Indeed, after the column ran, the iShares MSCI Emerging Markets Index Fund (EEM) fell by as much as 7% to its Feb. 5 intraday low before rebounding. Compare that to the Standard & Poor’s 500 and its 4.5% loss over the same period of time,” Michael Kahn Reports From Barrons.
Kahn continues to say, “While I do believe that over the long term, emerging markets should have a comfortable home in any investor’s portfolio, for the near term these markets are in the hot seat. On the surface, it seems strange that the technical underpinnings of the world’s growth engines — BRICs and other emerging markets — are similar to those of the world’s problem markets, affectionately known as PIIGS. It makes sense that stock markets in Portugal, Ireland, Italy, Greece and Spain face weakness as these countries face severe economic challenges.”
Kevin Daly, an emerging-markets portfolio manager with Aberdeen Asset Management, says that emerging markets are not battling domestic economic problems with multibillion dollar government spending. “Unlike their brethren in the developed world,” he adds, “emerging-markets banks are not saddled with toxic debt.”
“I believe the answer is that investors are starting to avoid riskier assets in earnest. Emerging markets still carry added risk. At a minimum, they are less diverse economies with smaller cushions to withstand global economic hiccups. But I will leave further discussion of this risk to more fundamentally oriented analysts. Again, I do concur with Aberdeen’s Daly that emerging markets are the places to be over the long term. However, it appears that patient investors will be able to buy them at cheaper prices in the near future,” Kahn Reports.
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Here are some details on the iShares MSCI Emerging Markets Index ETF (EEM):
The investment (EEM) seeks investment results that correspond generally to the price and yield performance of the MSCI Emerging Markets index. The fund generally invests at least 90% of assets in the securities of the underlying index or in ADRs and GDRs representing such securities. The index was developed by MSCI as an equity benchmark for international stock performance. It is nondiversified.
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