The move back to emerging markets gained momentum last week as traders shrugged off equity declines amid bullish calls from some of the world's largest investment firms.
Inflows to U.S.-listed exchange-traded funds that invest across developing nations, as well as those that target specific countries, hit $1.28 billion in the week ended Nov. 23, bringing this year's total to $20.5 billion, according to data compiled by Bloomberg. That is the sixth consecutive week of inflows.
Investors including Aberdeen Standard Investments, Schroders, Goldman Sachs Asset Management and BlackRock Inc. are looking with renewed interest at emerging markets after a hint that the Federal Reserve could pause on rate hikes next year as economic growth slows.
While some analysts remain cautious, Morgan Stanley joined the chorus Monday, announcing a "double upgrade" to emerging-market stocks, to overweight from underweight.
After stock markets fell last week, and with bond traders reducing their expectations on the pace of U.S. tightening, Fed chairman Jerome Powell has the opportunity to shed light on prospects for a pause in a speech Wednesday. The sit-down between Presidents Xi Jinping of China and Donald J. Trump has heightened hopes of a resolution to the trade war ahead of the next escalation of tariffs. Even the smallest of steps toward resolving the trade dispute will be welcomed by investors, according to Daniel Morris at BNP Paribas Asset Management.
"A softer tone expected from the Fed, a possible trade detente at the G-20 meeting and expectations of a weaker dollar in 2019 are key positive themes," said Greg Lesko, a money manager at Deltec Asset Management. "Plus, the market is down so much."
The Vanguard FTSE Emerging Markets ETF has received $421 million this month, and the iShares Core MSCI Emerging Markets ETF saw inflows of $2.2 billion —equivalent to 4.6% of its assets under management.
While inflows into all emerging market ETFs this year remain well short of the $47 billion posted in 2017, the recent pickup shows investors are growing more confident in the asset class after the strong sell-off at the end of the first half of the year, when investors removed more than $10 billion from emerging-market ETFs in eight weeks.