There are some positives for emerging markets, with rising commodities one of them, especially for countries which are net exporters. Rising commodity prices helps with trade balances and encourages more direct foreign net investments, Aghdasi says. For instance, rising copper prices can increase investments in Chile, home to major global supplies, in order to help build and maintain copper mines and equipment.
One way to invest in this is via the iShares MSCI Chile Capped ETF (ECH), which has assets under management of $377 million and a net expense ratio of 0.63 percent. The fund has lost roughly one-third of its value since early 2013 as copper prices, along with much of the commodities complex, have taken it on the chin. But ECH has rebounded in 2016 and is up more than 15 percent year-to-date.
The higher crude oil prices and the potential for stabilization could support producing countries now that the Organization for Petroleum Exporting Countries agreed in theory to output cuts among its members and possibly with major non-OPEC supplier Russia, says Nitesh Shah, director, commodities strategist at ETF Securities.
Higher prices will likely spur U.S. oil production which could cap crude oil prices around $55 a barrel. That’s good for importers like India, a bright spot in emerging markets, he says. Lower oil prices helped reduced the subsidies India paid to control energy prices, and low oil prices are also a catalyst to help the country continue to expand its manufacturing base, Shah says.
There are 10 ETFs and one exchange-traded note that focus on India, and all of them are in the red year-to-date, according to ETFdb. By far the largest product within this group is the iShares MSCI India ETF (INDA), with $3.5 billion in assets and an expense ratio of 0.68 percent. The fund, which provides exposure to mid- and large-cap stocks that provide access to 85 percent of the Indian stock market, is down more than 4 percent in 2016.
Several other India-centric exchange-traded products take a more targeted approach by focusing on small-cap stocks or infrastructure opportunities within the country.
Rodilosso says most emerging markets are in a better place versus several years ago from a stock inflow point of view, and that debt levels are reasonable. And if growth picks up that would give these countries’ central banks some policy flexibility, too.
But Rodilosso cautions that investors need to be nimble because of the geopolitical issues, which means a good trade at the beginning of the year may not be so great later. He says currency factors may have a slightly negative impact on returns, but there might be more to gain on the interest-rate side for fixed-income investors.
He says if U.S. interest rates are rising, he would opt for shorter duration in emerging market sovereign or high-yield corporate debt, but if market expectations of accelerating growth in the U.S. or abroad wither, investors may want to look at higher-quality, investment-grade debt.
Aghdasi says he’s less concerned about the impact of rising U.S. interest rates and more worried about Trump’s rhetoric regarding China and Taiwan. Additionally, he’s concerned about Trump’s comments about the U.S. commitment to the North Atlantic Treaty Organization, as well as his cabinet appointments, both of which have implications for relations between Europe and Russia in 2017.