The trade war with China is putting new focus on emerging markets, and the risks and rewards for U.S. investors.
“Emerging markets are cheap right now,” says Kevin Carter whose Emerging Markets Internet and E-commerce fund (EMQQ) is up 20% so far this year.
That outstrips the year-to-date performance of the broader MSCI Emerging Markets Index, which is up 9.15%. The Index consists of 26 developing economies, including Argentina, Brazil, Egypt, Greece, India, Indonesia, Russia and South Africa.
A year of redemption
Four interest rate hikes from the U.S. Federal Reserve in 2018 pummeled the emerging markets, but 2019 could be a year of redemption for those investors who stayed the course.
“I like emerging markets and EM debt mainly because I think the Fed will be dovish and that’ll send the dollar lower – that’s positive for the emerging markets,” Tom Essaye, founder of The Sevens Report, tells Yahoo Finance’s “The First Trade.”
For some investors, the low price-to-earnings ratio in emerging market ETFs have made them an attractive buy and, unlike U.S. equities, emerging market stocks have yet to recapture their highs for the year.
It’s all about the internet
While the U.S. trade war with China may have depressed Chinese stock prices, Carter says emerging markets’ long-term performance is pegged to the global shift in consumer behavior, as billions of people are expected to go online and consume via smartphones.
“Internet penetration still has lots of room for growth at 55% in China and 25% in India, compared to 89% in the U.S.,” says Carter.
“The same thing we’ve experienced with the smartphones changing consumption, the FANG stocks doing well and the traditional retailers on so-called “death watch” – same story [here], except emerging markets are just leap-frogging and becoming consumers with a super computer in their pocket.”
Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.