If Rates Are Higher, Why Are Emerging Markets ETFs Soaring?

By Brendan Conway

One probable reason we’re seeing a rally in emerging-markets stock Wednesday is the dovish view on interest rates just issued by the Federal Reserve’s key policymakers. Though not as surprising as the $10 billion “taper” in central-bank bond buying, it’s still sure to get bulls’ notice,just as it’s helping the price of gold Wednesday afternoon.

If global central bankers remain committed to ultra-loose monetary policy, Hooray for emerging markets, buy ‘em up! Or something like that.

EPA

Friend of the emerging markets?

But short covering could be another reasoniShares MSCI Emerging Markets ETF(EEM) is leaping 2.2%.

I wouldn’t be surprised to see this rally end soon. The yield on the 10-year Treasury note has gained today, sitting at 2.88% recently.

Higher interest rates are, as investors discovered in 2013 if they didn’t already know it, bad news for risky assets in the emerging markets.

Insofar as Treasury-bond yields inch closer to 3%, that’s got to be regarded as a negative for emerging-markets investments.

Elsewhere in this niche, Vanguard FTSE Emerging Markets (VWO) is ahead by 0.3% in Wednesday afternoon trading, EGShares Emerging Markets Consumer ETF (ECON) is rising by 2.1% iShares MSCI Emerging Markets Minimum Volatility ETF (EEMV) is gaining 1.8% and the leveraged Direxion Daily Emerging Markets Bull 3X Shares (EDC) is jumping 6.3%.