uploads///As Dollar Index Fell Money Flows To Emerging Markets

How Emerging Market Funds Kept Their Momentum


Dec. 4 2020, Updated 10:52 a.m. ET

Emerging markets index provided a 1.4% return in April

The Emerging Markets Hedge Fund Index returned 1.4% in April 2016. The index returned had 1.8% year-to-date (or YTD) as of April 30, 2016.

In the current market scenario, the global markets (ACWI) (VTI) (VEU) are mainly driven by the monetary stimulus provided by the central banks. In recent months, we saw money flow into the emerging markets (EEM) (VWO) (EDC) as the US Dollar Index (UUP) weakened.

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Strategy closely tied to US monetary policy

The Federal Reserve’s dovish stance in its monetary policy review meeting in March 2016 weakened the US Dollar Index. In March, Fed policymakers announced that they would soften the rate hike urgency, as they were expecting more downside risk for the US economy (VFINX) (IVV) (VOO) due to the sluggish global environment.

As the dollar index weakened, money flowed into the emerging markets, driving their performances.

Mark Mobius’s play on Brazil

The fundamentals are also changing for emerging economies. Many hedge fund managers expect that demographics will drive growth in the emerging economies. Mark Mobius, executive chair of Templeton Emerging Markets Group, stated at the 2016 SALT Conference that there was tremendous opportunity in the emerging markets, specifically in Brazil (EWZ).

Mobius also said that money would flow into the emerging markets, as he believed that there would be no rate hike in June 2016. According to him, December was the most probable month for a Fed rate hike.

Most developed markets such as Europe (EZU) (HEDJ) and Japan (EWJ) have already entered negative interest rate territory. Their sovereign debt currently provides a negative yield. Alternately, emerging markets offer decent yields, but the risk is high.

YTD, the iShares MSCI Emerging Markets ETF (EEM) had risen by 14.5% as of May 25, 2016.

In the next part, we’ll analyze the performance of the event-driven index in April 2016.


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