Sun sets on emerging markets

I recently sold my shares of the iShares Emerging Markets Dividend ETF (DVYE).

While I still believe that emerging markets are likely to be one of the best-performing asset classes of the next ten years, I think that it’s a minefield in the short-term.

The shares are down 4% on the year as of October 4. That’s not a disaster by any stretch, but it is a disappointment.

Source: Bloomberg

Mighty Dollar

In my opinion, there are a couple reasons for the recent underperformance in emerging markets. To start, in my opinion, the U.S. market remains the casino of choice for most investors right now.

Adding to this is dollar strength. While dollar strength is good for countries that sell manufactured products to the United States, it’s bad for commodities producers, as a more expensive dollar by definition means cheaper commodities.


Trade Tensions

President Donald Trump’s trade war isn’t helping either.

While it’s hard to argue that anyone truly “wins” a trade war, in my view Trump isn’t incorrect when he says that our trading partners need us more than we need them.

In a war of attrition like this, you “win” by losing less.


Of course, these conditions are not new, and virtually all of them were in place when I made the initial recommendation of DVYE.

None of these factors would be enough for me to punt on emerging markets just yet.

No, the problem is a greater risk that has only recently popped up: the twin meltdowns in Argentina and Turkey.

Photo Credit: Rodrigo Soldon via Flickr Creative Commons

A longer version of this article first appeared on on September 20, 2018.

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