{"id":8236,"date":"2020-07-14T23:21:18","date_gmt":"2020-07-15T03:21:18","guid":{"rendered":"https:\/\/bluehavencapital.com\/?p=8236"},"modified":"2020-07-15T13:12:29","modified_gmt":"2020-07-15T17:12:29","slug":"china-is-boosting-emerging-market-etf-performance","status":"publish","type":"post","link":"https:\/\/bluehavencapital.com\/china-is-boosting-emerging-market-etf-performance\/","title":{"rendered":"China is boosting Emerging markets"},"content":{"rendered":"[vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″ shape_divider_position=”bottom”][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_link_target=”_self” column_shadow=”none” column_border_radius=”none” width=”1\/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid”][vc_column_text]The Chinese stock market has been on a torrid rally over the last few weeks which is boosting Emerging Market ETFs, like VWO<\/a><\/span>. Emerging Markets have been a drag on performance for diversified portfolios in the last few years as they have significantly underperformed the US indices. More recently, however, thanks in large part to a strong rally in Chinese stocks, Emerging Market ETFs are performing better. This performance is now acting as a tailwind for diversified portfolios that are still dealing with higher portfolio volatility, overall.<\/p>\n

US has been the best game in town<\/h2>\n

The graph below shows the performance of the S&P500 (VOO<\/a><\/span>) versus a Chinese stock market ETF (MCHI<\/a><\/span>) and a broad-based Emerging Market ETF (VWO<\/a><\/span>) from the last decade (2010-2019):<\/p>\n

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The S&P500 went up 250% during the last decade compared to less than 50% gains for MCHI and VWO. That type of performance gap was a huge drag on any portfolio that invested in Emerging Markets over US markets. We typically structure portfolios to have between a 3-10% equity allocation to Emerging Markets. Exact numbers vary by account depending on risk tolerance and other factors.<\/p>\n

One might ask why would you invest in Emerging Markets at all if they’ve done so terribly over the last 10 years? Well, there’s a reason you’ve read the phrase, “past performance is no guarantee of future results.” It’s true. Just because the US market has been the best place to invest over the last decade doesn’t mean it will be from this point forward. And we’re starting to see signs of the US possibly losing its leadership status already.<\/p>\n

China is helping close the gap<\/h3>\n

Over the last few months Emerging Markets have closed what had been a big performance gap with the S&P500 in 2020, thanks in large part to a rally in Chinese stocks. Here is the same graph from above adjusted to a year-to-date time frame:<\/p>\n

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The lower black line is VWO (broad Emerging Market ETF), the top black line is MCHI (Chinese stocks only ETF), and the blue line is VOO (S&P500 ETF). A few things stand out to us:<\/p>\n