Emerging markets sink after Trump victory

On a tear before the election, the average fund is down 4.4% after it because of president-elect's rhetoric about countries like Mexico and China

Nov 23, 2016 @ 12:07 pm

By John Waggoner

Emerging markets have been sinking since the election of Donald Trump, led lower by Latin America and India.

The average diversified emerging markets fund has fallen 4.4% since the Nov. 9 election, according to Morningstar, vs. a 3.5% gain for the Standard and Poor's 500 stock index.

While a 4.4% gain is relatively modest, it's noteworthy because emerging markets were on a tear before the election, soaring an average 13.6%. In contrast, developed markets were pikers. The S&P 500 had gained 6.7% before the election, including reinvested dividends, and the MSCI EAFE index, which measures developed overseas markets, had fallen 3.7%.

Trump's rhetoric against China and Mexico clearly hasn't helped emerging markets, said Todd Rosenbluth, director of ETF research for CFRA. Funds that specialize in Mexico have been hit hard since the election. iShares MSCI Mexico Capped (EWW), for example, has tumbled 15.6% since election night.

It's hard not to blame those losses on the election results. “There's a lot of speculation out there about emerging markets, but when the central theme of the winning candidate is 'F Mexico,' that part isn't that ambiguous,” said Russel Kinnel, editor of Morningstar Fund Investor.

But other factors are at work as well, said Mr. Rosenbluth. The value of the U.S. dollar hit a 13-year high, said Mr. Rosenbluth. A rising dollar tends to make investors move away from emerging markets and other risker assets, he said. In October, investors yanked an estimated $240 million from diversified emerging markets stock funds. All things being equal, rising U.S. interest rates — and the prospect of further rate hikes by the Federal Reserve — could keep the dollar strong.

The soaring greenback also hurts U.S. investors in emerging markets funds. Typically, when the dollar rises, returns from overseas investments fall, and that, in turn, tends to make U.S. investors flee. For example, Brazil's stock market has fallen 5.2% the past month in local currency, according to MSCI. In dollars, it's down 10.6%.

The emerging market troubles aren't limited to Mexico and Latin America. Van Eck Vectors Indonesia ETF (IDX) has tumbled 8.5% since the election. And Van Eck Vectors India Small-Cap ETF (SCiF) has sawed 14.75% from its returns since Nov. 8.

Best, worst diversified emerging markets funds since the election
Fund Ticker 1/1/2016 - 11/8/2016 11/8/2016 - 11/22/2016
Best
Seafarer Overseas Value Institutional SIVLX 0.0% 0.8%
Pioneer Emerging Markets A PEMFX 10.6% 0.1%
Templeton Frontier Markets A TFMAX 3.5% -0.1%
Frontier Silk Invest New Horizons Instl FSNHX 0.0% -0.1%
Ashmore Emerging Mkts Frontier Eq Instl EFEIX 8.5% -0.3%
Worst
Wasatch Emerging Markets Select Instl WIESX 7.4% -8.7%
Wasatch Emerging Markets Small Cap Inv WAEMX 6.2% -7.8%
BMO LGM Emerging Markets Equity I MIEMX 18.5% -7.8%
Goldman Sachs N-11 Equity A GSYAX 0.5% -7.3%
Dreyfus Global Emerging Markets A DGEAX 10.5% -7.2%
S&P 500 6.6% 3.5%
MSCI EAFE -3.7% -1.3%
Average diversified emerging markets fund 13.6% -4.4%
Source: Morningstar. Dividends, gains reinvested

Broadly speaking, the anti-free trade rhetoric isn't good for most emerging markets, Mr. Kinnel said. “All the world's economies are connected, and generally what's bad news for one is bad news for another.”

Investors in emerging markets should expect volatility, and that's particularly true until the new administration presents a fully articulated trade policy. “Investors are making a guess about what Trump will do because he's always contradicted himself,” Mr. Kinnel said. “Obama, Bush and Clinton said pretty clearly what they would do. To me we're in a much more unpredictable area. And if we really want a trade war, China has more ammo than anyone else.”

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Oct 23

Conference

Women Adviser Summit - San Francisco

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

Events

3 Questions to ask yourself when making your succession plan

Michael Futterman from Janus Henderson Investors has sage advice for advisers as they approach retirement.

Latest news & opinion

No 'stay bonuses' for Cetera Financial Group reps

Firm confirms brokers will not be offered retention bonuses to stay on after acquisition by Genstar Capital.

Cetera Financial Group brokers taking wait-and-see attitude on sale

One issue in the wake of the firm's acquisition is whether they will be paid 'stay bonuses' to remain at the brokerage.

Fidelity backs away from being 'point in time' fiduciary for 401(k) plans

Some advisers think this indicates other providers will pivot in light of DOL fiduciary rule's death.

Bills to reform adviser regulation, increase sophisticated investors and protect seniors pass House

Measures included in package of 32 bipartisan bills meant to ease rules, spur investment

Genstar Capital buys majority stake in Cetera Financial Group

The private-equity firm has previously invested in such companies as Mercer Advisors and AssetMark.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print