ETFs

These Emerging Markets ETFs Could Rebound in 2023

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With today being the final trading day of 2022, it’s now fair to say this was another forgettable year for emerging markets equities and the related exchange traded funds.

The widely observed MSCI Emerging Markets Index enters Friday trailing both the MSCI EAFE Index and the S&P 500 on a year-to-date basis. That means that over the past seven years, the emerging markets benchmark beat the S&P 500 just once on annual basis – in 2017. Translation: Investors have long waited for emerging markets stocks and ETFs to regain lost luster.

“It has been a rough 12 months for emerging markets that have seen more governments stumble into default, currencies suffer and double-digit losses in stocks and bonds alike - though many investors are optimistic that 2023 could bring some relief,” reports Reuters.

It remains to be seen if 2023 marks the start of an earnest redemption for emerging markets ETFs, but if it does, risk-tolerant investors may want to consider some of the following funds.

SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG)

The SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMGis still an unheralded name among emerging markets ETFs, but investors shouldn’t overlook the potential potency of the emerging markets/environmental, social and governance (ESG) marriage. That’s one of saying some studies confirm that the ESG overlay trims some of the risks associated with investing in developing economies while providing the potential for superior returns relative to non-ESG strategies.

REMG follows the Bloomberg SASB Emerging Markets Large & Mid Cap ESG Ex-Controversies Select Index, which is designed to avoid exposure to companies that could be prone to ESG offense – a notable endeavor in developing economies which often lack the ESG focus of, say, Europe or the U.S. REMG is also a credible avenue with which to play China’s COVID-19 reopening without the commitment of a dedicated China fund.

“Earlier this month, the Chinese government implemented sharp changes to its Covid policies, allowing domestic travel and quarantines at home in a move to keep businesses running,” reports Fred Imbert for CNBC. “Among the changes, people will no longer need a negative Covid test to travel to a different part of the country. Local authorities have also removed many testing requirements.”

VanEck Vietnam ETF (VNM)

The VanEck Vietnam ETF (VNM) is the original ETF dedicated to this fast-growing Southeast Asian economy and it should also be noted that Vietnam isn’t classified as an emerging market. Rather, it’s a frontier market, the next rung down from emerging.

However, that’s relevant because Vietnam has long coveted the emerging markets promotion, which would likely spur a wave of professional buying of stocks in the country. To the credit of policymakers there, they’re not sitting idly by, hoping the promotion will arrive. They’re taking steps to earn it. It could arrive in 2023, but even if it doesn’t, Vietnam offers investors a compelling fundamental story.

“The macroeconomic outlook of Vietnam is bright as the country has witnessed strong domestic consumption, received foreign direct investments (FDI) and maintained a surplus in trade balance with other countries,” noted Sunny Bokhari, VanEck associated product manager. “Vietnam’s real GDP growth is forecasted to exceed 8% in 2022.”

KraneShares S&P Pan Asia Dividend Aristocrats ETF (KDIV)

The KraneShares S&P Pan Asia Dividend Aristocrats ETF (KDIV) isn’t a dedicated emerging markets ETF, but it is heavily allocated to Chinese dividend payers as well as others of that ilk from across the region. Exposure to the likes of Australian and Japanese equities diminish some of the risk that could come along with this fund while enhancing its dividend growth and value propositions.

Speaking of payout growth, KDIV follows the S&P Pan Asia Dividend Aristocrats Index, which requires member firms to sport long-term track records of sustaining and increasing dividends.

Henry Greene, an investment strategist at KraneShares, “pointed out that the S&P Pan Asia Dividend Aristocrats Index has historically had a higher aggregate dividend yield than its broad benchmark, the S&P Pan Asia BMI Index, and higher dividend growth across its constituents. Furthermore, the S&P Pan Asia Dividend Aristocrats Index offers a 2% higher dividend yield and over 30% lower P/E than the S&P Pan Asia BMI Index,” according to KDIV’s issuer.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Todd Shriber

Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.

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