Emerging-market stocks have experienced a nine-month run of gains, the longest streak since 2004, driven by strong inflows and high demand for Asian tech shares. A weak dollar and Federal Reserve rate cuts have been key factors in this trend, with Chinese tech shares also performing well.<\/p>\n
The iShares MSCI Emerging Markets ETF (EEM) has risen 29.5% this year, outperforming the S&P 500’s 14.5% increase. Emerging markets have remained undervalued, with the EEM carrying a P\/E ratio of 16.33X compared to higher ratios for U.S. counterparts.<\/p>\n
Emerging economies such as India, China, and Brazil are seeing reduced consumer-price growth, lessening the requirement for interest rate hikes. In India, significant rate cuts have already occurred, while China’s investment in AI has contributed to a robust tech sector, although Chinese tech shares remain cheaper than their U.S. counterparts. <\/p>\n
P\/E ratios for Chinese tech ETFs remain lower than U.S. ones, as evidenced by the Invesco China Technology ETF (CQQQ) versus the iShares U.S. Technology ETF (IYW). A variety of emerging market ETFs outperformed the S&P 500 this year, maintaining low P\/E ratios and substantial market value, largely influenced by Chinese content.<\/p>\n
Given that emerging-market stocks have now posted nine straight months of gains, we should view this not as an end, but as a sign of persistent momentum. The primary drivers for this trend, a weakening U.S. dollar and the Federal Reserve’s recent rate cut in September, appear set to continue. This macro environment strongly suggests maintaining a bullish outlook on emerging markets.<\/p>\n
For the coming weeks, we should consider buying call options on broad-based ETFs like the iShares MSCI Emerging Markets ETF (EEM) to leverage this upward trend. Yesterday’s U.S. jobs report for September showed weaker-than-expected hiring, which only strengthens the case for another Fed rate cut before year-end and adds more downward pressure on the dollar. This makes long positions on emerging market assets even more attractive right now.<\/p>\n
The valuation gap between emerging markets and the U.S. remains significant, providing a cushion. With the CBOE Emerging Markets ETF Volatility Index (VXEEM) trading near a two-year low of 19, buying call options is relatively inexpensive. Alternatively, for a more conservative approach, we can sell put credit spreads on the iShares Core MSCI Emerging Markets ETF (IEMG), collecting premium on the belief that its lower valuation will limit downside.<\/p>\n
The Chinese technology sector, particularly in AI, is showing exceptional strength and still appears cheap compared to U.S. tech. With the Invesco China Technology ETF (CQQQ) already up over 50% this year, we can use bull call spreads to participate in further gains while defining our maximum risk. This allows us to stay in a hot market that continues to draw in global investment.<\/p>\n
We should also look at the relative performance against U.S. markets. A pairs trade, going long EEM futures and short S&P 500 futures, is a direct way to bet on this divergence continuing. When we last saw a winning streak of this length back in 2004, it preceded a multi-year period where emerging markets massively outperformed developed markets.<\/p>\n
Finally, we should not ignore the continued capital flows, as data from the last week of September showed another $4 billion moving into EM equity funds. For the more fundamentally driven ETFs mentioned, like the Schwab Fundamental Emerging Markets Equity ETF (FNDE), selling cash-secured puts at strikes below the current price is a sound strategy. This allows us to either generate income or acquire shares at a discount if a minor pullback occurs.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Emerging-market stocks surge, led by Asian tech, weak dollar, and Fed cuts; outperform S&P with value.<\/p>\n","protected":false},"author":62,"featured_media":16964,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-31553","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/31553","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=31553"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/31553\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/16964"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=31553"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=31553"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=31553"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}