Emerging Markets Stocks Lead Markets Higher In 2018’s First Week

Equities in emerging markets posted the strongest return for the major asset classes in 2018’s first week of trading, based on a set of exchange-traded products. The losers for the year-to-date performance so far are limited to US bonds and US real estate investment trusts (REITs).

Vanguard FTSE Emerging Markets (VWO) led the field higher with a sizzling 4.2% gain last week. The increase marks the ETF’s fifth consecutive weekly advance and the strongest since last July.

Stronger commodity prices and US-dollar weakness are factors driving stocks higher in emerging markets, notes Koon Chow, a strategist at UBP, a Swiss private bank. “That’s providing a macro tailwind for emerging markets – oil and global trade both speak to stronger emerging markets exports and emerging markets growth, which helps lift people’s expectations on a whole range of EM assets.”

US REITs suffered the biggest stumble last week among the major asset classes. Vanguard REIT (VNQ) lost 2.3%, the second straight weekly setback in the last three weeks for securitized real estate shares.

“Expectations of stronger economic growth and higher inflation have pressured yield-sensitive sectors,” according to Hoya Capital Real Estate, an investment advisor that focuses on commercial real estate securities.

For the one-year trend, emerging markets stocks continue to hold the top spot in this corner too. VWO is ahead by 33.0% as of Friday’s close (Jan. 5) vs. the year-ago price after factoring in dividends.

Note that all the fund proxies for the major asset classes are posting gains for the one-year change through last week. The weakest return is for US REITs: VNQ is ahead by a razor-thin 0.3% for the past year.