EEM Stock Recent News

VWO: Declining China Exposure To Hurt Returns

On this episode of the “ETF of the Week” podcast, VettaFi's Head of Research Todd Rosenbluth discussed the Columbia EM Core ex-China ETF (XCEM) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.

Emerging markets have taken solace in the view that the U.S. hiking cycle is over, helping deliver strong returns in 2023. Slowing global inflation has been due to sharply lower core goods inflation, while service prices have remained stickier.

By Ed Agostino After the great financial crisis, China's appetite for commodities and technology fueled a global economic recovery. The rest of the world recovered and then grew, largely on the back of China's incredible transformation.

The Fed's expected normalization policy was the bullish catalyst for EEM. However, the Fed signaled a data-dependent delay in the expected cuts. Thus, EEM does not have a positive catalyst for now, which is also reflected in a strengthening USD.

EEM, the ETF that tracks iShares MSCI Emerging Markets, has performed poorly over the past 10 years, but may present a contrarian buying opportunity. The underperformance of EEM is partially related to the value of the US dollar and the weakening Euro, which reflects weak global economic growth. The upcoming interest rate normalization policy by the Fed could be a positive catalyst for emerging market stocks, including EEM.

Global shares experienced a slump on Jan 16, 2024 in response to fresh economic data that heightened concerns about China's economy. Also, bets over imminent Fed rate cuts weakened.

Emerging markets will also be looking closely at economic conditions in mainland China, which will be a key determinant of broader emerging market growth in 2024. A key reason for diverging emerging and developed market performance was the marked variation in demand conditions.

Emerging market ETF investing can gain steam this year due to undervaluation, likely halt in Fed rate hikes, falling EM inflation and higher growth rates (than developed economies).

Mexico and Brazil are heading into a favorable interest rate backdrop already in a strong position.