Emerging markets, which had a very difficult year in 2022, are getting some tailwinds in 2023; the biggest of which is China’s about-face on its strict zero-COVID policy. Citing data from BofA Global Research, Reuters reported that after China eased its COVID restrictions, investors pumped a record $12.7 billion of capital into emerging market debt and equity funds for the week ending Wednesday, January 18.
In addition to China taking a more pro-growth, stimulus-oriented stance, emerging markets are also looking to benefit from the U.S. dollar peaking and changing global trade relationships. As the dollar potentially weakens, emerging markets could benefit from the relative appreciation of their own currency. The reorganization of strategic supply chains could create new opportunities for emerging market nations other than China.
“All in, we think it may be time for investors to reassess their exposure to emerging markets,” wrote Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “Investors should consider rebalancing EM exposure with an eye toward China onshore companies, as well as opportunities in South Korea, Taiwan and Brazil.”
With emerging markets becoming a potential bright spot, investors looking to adhere to environmental, social, and governance (ESG) principles may want to look into the (EMCR ) and the (EMSG ).
EMCR seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive ISS Emerging Markets Carbon Reduction & Climate Improvers Index NTR.
According to the issuer, the index aims to track the performance of emerging markets large- and mid-cap securities, including only companies operating in accordance with market standards on ESG controversy screens. Those standards are based on established norms such as the United Nations Global Compact and the exclusion of significant involvement in defined sectors.
The fund aims to cover current and future regulation on ESG investments and also include a focus on issues related to climate change. The underlying assets are selected and weighted in such a manner that the resulting benchmark portfolio’s GHG emissions are aligned with the long-term global warming target of the Paris Climate Agreement.
EMCR carries an expense ratio of 0.15%.
EMSG, meanwhile, seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Emerging Markets ESG Leaders Index. The cap-weighted index provides exposure to companies with high ESG performance relative to their sector peers.
EMSG’s index consists of large- and mid-cap companies across 24 emerging market countries. The index is designed for investors seeking a broad, diversified sustainability benchmark with relatively low tracking error to the underlying equity market.
EMSG has an expense ratio of 0.20%.
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