Cedears: Wall Street or emerging market ETFs, which ones win the race in 2024?

The emerging markets They are presented as an opportunity to add value to the local investor’s portfolio. You can bet through Exchange Traded Funds (ETFs), an option that is made via Argentine deposit certificates (Cedears). These instruments not only achieve greater diversification, but also face additional risk, driven by the dynamism typical of developing economieswhich translates into a greater volatility.

The diversity inherent in the term “emergent” covers different economic realities and diverse regions. Therefore, before investing in these instruments, It is essential to understand what the pesos or dollars are being placed on. For example, China is no longer attractive to investors due to a series of internal problems that hamper its markets, the flow of funds to the ETF Emerging Markets ex China (EMXC), focused on emerging securities outside the Asian giant, is on the rise and surpasses even the largest equity ETF centered in the Asian giant.

Changing dynamics in emerging markets

This change in dynamics suggests a continued shift of funds towards emerging markets outside of China. Countries like India, Brazil and Mexico become interesting to investors by setting records in their respective stock markets, in part, driven by the hope of a interest rate cut soon In U.S.A.

The search for positions in emerging markets, such as Mexico, can be seen in how the large Wall Street banks, such as Bank of America and Goldman Sachsturn their gaze towards that country by anticipating a significant increase in investment income in that territory.

Another example is the stock market. India which, in recent days, surpassed that of Hong Kong, and was positioned as the fourth largest in the world.

These trend changes prompt investors to think Whether it’s the right time to bet on emerging markets ETFs or lean towards wall street indicesconsidering a possible recession marked by an election year, which could spice up the markets with a greater dose of volatility.

At the local level, a speech from the Federal Reserve (Fed), associated with a reduction in reference rates “It is an important tailwind for emerging economies, with high dependencies on commodities” like Argentina, they assure in statements to Ambit from the Research team Andean Investments (AI).

An investment in emerging markets, but without China?

And as it is well explained Ignacio Sniechowskihead of research at GrupoIEB, the Chinese stock ETF (MCHI) has not stopped deteriorating, contrary to what has happened with the ETF of countries like Brazil (EWZ), Mexico (EWW) and India (INDA). “The weight that China has and, therefore, its equities, is such that the general emerging markets ETF (EEM) has been having very poor performance dragged by said economy,” says the analyst in dialogue with this medium.

Sniechowski recommends that, by 2024, it will be important to monitor whether the Chinese economy “It has already hit rock bottom and a recovery process begins or if you still have to go through greater complications.” This will not only be an important element when deciding to invest in Chinese stocks or their ETF, but also in emerging markets (EEM).

With respect to the other emerging markets, the vision of Sniechowski is more constructive, as it explains that once the rate cycle is over and with a more lax Fed, “the impact on the emerging markets In general, it should be positive,” says the IEB analyst, who recalls that, from Argentina and in pesos, only two Cedears ETFs are available: that of emerging markets in general (EEM) and that of Brazil (EWZ).

From Andean Investments, It is argued that, in terms of emerging market ETFs, there are very attractive valuations in some countries, such as Brazil (EWZ). The City broker estimates that adding exposure with this instrument is a good alternative for diversify portfoliosapart from being a trade with a “very good risk/reward ratio for 2024“.

Emerging markets vs. Wall Street

Opportunities in the United States

On the US economy, Sniechowski highlights the resilience of the technology sector, driven mainly by two interrelated themes: artificial intelligence and semiconductors. “This is reflected in the remarkable performance of the ETF that replicates the Nasdaq (QQQ), surpassing the SP500 (SPY) and the most conservative Dow Jones (DIA)”, he warns.

For the IEB analyst, it is expected that this year these items will continue to be important drivers of the technology sector and of equity market in general. But he indicates that “it will be crucial to closely monitor the evolution of the US economy to determine if it is heading towards a soft landing or eventually enters a recession.

However, to the relief of investors, so far, all macroeconomic variables and companies’ profit and sales expectations support the hypothesis of a soft landing.

It is worth remembering that, at the local level, there are ETFs that replicate the three main US indices (QQQ, SPY, DIA) and even one that covers smaller capitalization companies, such as the IWM. These instruments allow Argentine investors to diversify their portfolios and participate in the growth of the United States technology sector.

The advantages of emerging

Thus, ultimately, the emerging market landscape offers a range of opportunities, but the key is to carefully understand and manage the risks inherent in that investment. On the part of Wall Street indices, experts recommend caution when betting on the magnificent seven(Apple, Microsoft, Google, Amazon, Meta, Nvidia and Tesla).

This is because when measuring the S&P500 In terms of P/E Ratio, it is observed that it is above the average and this is mainly explained by the rise in those seven companies last year, therefore, we must proceed with caution when adding ETFs that have “high exposure“to those companies, they recommend from Andean Investments.