After dismal performance for stocks and bonds in 2022, Wall Street is looking for growth opportunities outside of the US in 2023. Emerging markets, including countries like China, India , Brazil, etc., are the top regions money managers are investing in hoping to see gains outstripping the US The trend is resurging after also underperforming in 2022. Investors Investors are buying in this transaction. Last week, Bank of America investors poured $12.7 billion into equity funds and emerging market bonds, the largest ever inflow, according to a note on Friday. . Investment strategist Michael Hartnett writes that the move was driven by China’s reopening. That’s a pivot from just a few months ago, when investors shunned China as it pursued a Covid-free policy. “Last year was like the pinnacle of pessimism as the biggest country was China,” said Laurence Bensafi, portfolio manager and vice president of emerging market securities at RBC Global Asset Management. , where everything goes awry. Investor sentiment is shifting as China’s economy resumes. Performance has been strong so far this year. The iShares MSCI Emerging Markets Asia Exchange-Traded Fund is up 11% and the core iShares MSCI Emerging Markets ETF is up more than 10% since the start of the year. IEMG Series YTD Emerging Market Activity ytd This trend will continue as central banks around the world raise interest rates to tame high inflation and face a potential recession. “We feel we’re in another transition, another phase where we’re entering a new regime and we’re going to have higher inflation in the longer term, higher interest rates, higher commodity prices. globalization and all of that will be more positive for emerging market economies,” Bensafi said. Investment Trends Despite the promise of emerging market trade, it can be difficult for retail investors to invest in other countries without seeing returns eaten away by fees. Still, it’s still worth the extra time and attention to capture the upside potential and diversify one’s portfolio. “Investors really have to look elsewhere for sources of diversification and returns,” said Nathan Kotler, head of trading at GenTrust. “I think one of the expensive lessons investors learn in 2022 is that stocks don’t always go up and US stocks don’t always outperform other markets.” There are a few key trends investors are looking at. For Kotler, it’s emerging market bonds, where his company has an outperform-to-neutral rating on the stock. This is because bond yields have rebounded and look attractive, he said. China is another big trend that investors are paying attention to. According to Rhys Williams, chief strategist at Spouting Rock Asset Management, at this point in the coronavirus pandemic, the country and especially the leadership party needs a new economic plan to rebuild. “We think at least next year, the grass will be greener in China,” he said, adding that the biggest headwind that will turn favorable is the reopening and retraction of policies. book of Covid. “We expect the China restart to really affect the whole world, and that could happen as early as February,” Williams said. He is also considering Brazil following the election of Luiz Inácio Lula da Silva, as well as several smaller countries including Thailand. Another factor that will help emerging market countries perform better in 2023 is the dwindling US dollar strength. In 2022, a strong dollar weighed on emerging-market debt, which is usually denominated in dollars. This year, however, that power will be attenuated, meaning debt will be less costly for those countries. How to invest Experts often advise investors to look at funds that hold multiple emerging markets for diversification and access to the whole trend rather than picking individual stocks or countries on their own. Gaurav Mallik, chief investment strategist at State Street Global Advisors, said: “It is very difficult to determine which countries will perform well at what time. “It’s good to have broad exposure.” Passively managed index funds can be a good idea for investors, says Kotler, because they typically cost less than actively managed funds and tend to be more tax efficient. . He added that bond funds also tend to have lower expense ratios than mutual funds. Some of the top emerging market bond funds include the iShares JP Morgan USD Emerging Markets Bond ETF, the Vanguard Emerging Market Government Bond ETF, and the VanEck JP Morgan EM Local Currency Bond ETF. There are also stock buying opportunities that are currently looking cheap compared to other stocks, Mallik said. A top recommended fund is the iShares Emerging Markets ETF. The downside of large emerging market funds, of course, is that they tend to be the heaviest for China, as it is a country with largest emerging market. For investors who want to avoid China, or who want to be able to choose more carefully, there are a few other options. Those interested in investing in Latin America should consider the Franklin FTSE Latin America ETF, which has an expense ratio of 0.19%, or the iShares Latin America ETF, which has an expense ratio of 0.47%, according to the data. by Morningstar. The Franklin Templeton ETF is Ullal’s preferred fund because it has a lower expense ratio and is slightly more diversified than the iShares fund — it has over 150 holdings compared to about 40. Both have a moderate level of risk. The same sector includes about 60% stocks from Brazil and 25% to 30% from Mexico. He added, investors who only want to focus on one or a few countries without broad exposure can consider country-specific ETFs including the iShares MSCI China ETF (expense ratio). fees 0.58%) or iShares MSCI India ETF (cost ratio 0.64%). There are also smaller cap options for investors who want to include more than just large cap names.