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ETF Insights Blog

Emerging markets have provided surprising investment returns amid pandemic

Prerna Chandak, MBA

Vice President ETFs

As US and Canadian equity markets hit lows in March, broad emerging markets began picking up momentum and have since risen to new highs. Yet interestingly, emerging markets flows within the ETF industry have not reflected this. The Canadian ETF industry has seen record flows year-to-date of $22.4 billion as of June 30. Emerging markets equity net flows total a mere $675 million.

Historically, Canadian and US investors have exhibited strong home bias, assigning greater weights to domestic equity and fixed income markets. Investors have been hesitant to diversify globally despite the potential reduction in volatility and enhanced portfolio efficiency. But not all developed and emerging markets have performed the same over the past decade, which has likely contributed to the continued home bias. In the past, investors have also not had a myriad of ETF vehicles to choose from to achieve both broad, as well as more sector-specific or country-specific, exposures.

Year-to-date, China has been among the best-performing segments of global markets, despite the pandemic, trade issues and political tensions. Similarly, strong performance has been seen in other East Asian regional markets including South Korea, reflective of their responses in managing the health crisis and their effective use of the fiscal and monetary policy. As large commodities buyers, these markets have also benefited from low oil prices and a weakening US dollar.

China-focused indexes, such as the CSI 300 Index (SHSZ300 Index), have outperformed broader indexes including the Solactive Canada Large Cap Index (SOLCALCC Index), Solactive US Large Cap CAD Index (SOUSLCCC Index) and Solactive GBS Emerging Markets Large & Mid Cap Index (SEMLMCCC Index) year-to-date:

Source: Bloomberg, as of July 21, 2020
From an ETF perspective, investors can gain emerging markets equity exposure through index, strategic beta or active ETFs that provide broad, country-specific or sector-specific opportunities. Two such ETFs include the Mackenzie Maximum Diversification Emerging Markets Index ETF (ticker: MEE) and Mackenzie China A-Shares CSI 300 Index ETF (ticker: QCH).

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