The selling in Chinese stocks has shown no signs of abatement in recent days, as double digit losses have quickly eroded much of this year’s gains.
This sudden collapse has most notably affected single country exchange-traded funds such as the iShares FTSE/Xinhua China 25 Index (ETF) FXI, which has dropped more than 19 percent over the last month. While investing in specific foreign countries can be risky, even more diversified emerging market ETFs have experienced the spreading pain of China’s drop.
The China Effect: ETFs
In both indices, China holds the top spot in terms of percentage allocation to a single nation. Currently publicly traded Chinese companies make up 23 percent of EEM and 28 percent of VWO. Other top emerging market countries in these indices include Taiwan, South Korea, India, South Africa and Brazil.
Overweight China
Other Emerging Stocks Dealing With Volatility
One fund that has ridden the elevator down to a softer landing is the iShares MSCI Emerging Markets Minimum Volatility ETF (iShares Inc. EEMV). As its name implies, this ETF selects a smaller universe of emerging market stocks with a historical penchant for lower volatility.
While EEMV has still experienced a significant decline from its highs, it is outperforming EEM by 3.40 percent so far this year.
Disclosure: At the time this article was written, some clients of FMD Capital Management owned shares of VWO.
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