Emerging Markets ETFs Could Surprise in 2024
Starting with a disclaimer, it’s been awhile since the MSCI Emerging Markets beat the S&P 500 on an annual basis and it’s not going to happen this year.
The last time the emerging markets benchmark beat the domestic equities was 2017, meaning this year will be the sixth consecutive in which it’s lagged major U.S. equity indexes. Making that scenario all the more vexing is that stocks in developing are more volatile than U.S. equivalents. Between the heightened turbulence and slack performance, there haven’t been many good reasons for investors to embrace the risks associated with emerging markets equities and the corresponding exchange traded funds.
Problematic for investors is the fact that many developing economies, including some of the larger ones, continue notching growth rates that far outpace those seen in more mature economies. In other words, some emerging markets’ equity markets aren’t keeping pace with the economies’ growth rates.
Of course, “it’s time” or an asset being overdue to outperform aren’t credible investment theses, but there are areas of opportunity that could be compelling in 2024. Here are some of the ETFs to consider.
Global X MSCI Argentina ETF (ARGT)
A word of caution regarding the Global X MSCI Argentina ETF (ARGT). The original ETF dedicated to stocks in the South American county is higher by 8.63% over the past week and 31.37% over the past month on the back of populist Javier Milei’s victory in the recent presidential election in that country. As of yet, ARGT hasn’t experience a “sell the news” retrenchment. Perhaps that’s a sign that markets continue to be enthusiastic about Milei’s win.
While the right-leaning Milei has predictably been vilified in the global media, a strong case can be made that he’s likely a stark improvement over previous regimes in the country and, at worst, won’t be any worse than those regimes. After all, Argentina has experienced five sovereign defaults over the past 50 years.
Additionally, Milei is likely to moderate his tone because his La Libertad Avanza party wields little power in either house of Argentina’s Congress. A more middle-of-the-road posture from the new president could be to the delight of investors.
“We have been impressed with Milei’s actions on this front since the first round of voting,” according to Global X research. “His negotiations with the Juntos coalition showed flexibility within his ideological framework, easing fears that he would not moderate. Milei’s victory also proves that he can maintain support from his core voters while coming to the middle. As a result, we see declining execution risks surrounding his ability to successfully implement orthodox fiscal and economic policies while maintaining public support.”
WisdonTree India Earnings Fund (EPI)
The WisdonTree India Earnings Fund (EPI) merits consideration in the “emerging markets ETFs for 2024” due in part to that fact that Indian stocks have been trouncing broader developing world indexes for several years. Past performance isn’t a guarantee of future returns and India holds national elections next year, which could boost volatility. However, some major global banks are already forecasting another year of out-performance by Indian equities.
Specific to EPI, the first U.S.-listed ETF to buy local Indian stocks, this emerging markets ETFs has some perks. Those include helping investors stay away from money-losing companies and those that are richly valued – an important point given the current state of affairs regarding Indian stocks.
“We optimize valuation, by weighting by earnings and eliminating unprofitable companies, allowing the most profitable companies to occupy more weight in the Index. This allows EPI to provide investors with access to the broad market, but at a more reasonable price,” notes WisdomTree.
VanEck Vietnam ETF (VNM)
The VanEck Vietnam ETF (VNM) – the original ETF to focus on Vietnamese shares – is up an admirable 10.64% year-to-date, but things could be even better in 2024 as Vietnam continues its quest for emerging markets status. It’s currently classified as a frontier.
Part of that quest includes continued liberalization of local financial markets, which are driving robust levels of foreign direct investment. Another source of allure with VNM is Vietnam’s rise as a tech hub. That could benefit VNM’s financial services holdings and potentially set the ETF up for more long-term growth.
“Vietnam has the fastest-growing digital economy in Southeast Asia. By 2025 it could be worth $49 billion, with an average annual growth rate of 31%, by 2025. Nearly three-quarters (73%) of the population are internet-enabled, rising from around 2% in 2002, making Vietnam the 12th biggest internet user worldwide,” according to Dragon Capital.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.