Emerging stocks climbed higher following a recent decision from the Federal Reserve to leave its key, benchmark interest rate unchanged. Since finding a bottom on January 21, 2016, the MSCI Emerging Markets Index has returned 7.95% in CAD terms, through to March 17, 2016, according to Bloomberg data.
The U.S. central bank also indicated that it is now targeting only two more interest rate hikes this year, down from four. “A more dovish tone from the Federal Reserve indicates less expected growth in the developed world and as a result we have seen the smart money moving back into the emerging markets,” notes Christine Tan, Chief Investment Officer with Excel Investment Counsel Inc. “Within the emerging markets space we have started to see significant advances in equity prices in China and Brazil, as well as India.”
ETF flows have also highlighted an increased appetite for emerging markets as an asset class. Investors added US$2.7 billion to U.S. exchange-traded funds that buy emerging market stocks and bonds, for the week ending March 18, 2016, according to data compiled by Bloomberg. This was the highest level since April, 2014. A further breakdown of the data shows that US$2.43 billion went into equity funds, while $288.7 million was allocated to bond funds. These strong inflows paint a bright picture for emerging markets going forward.