Amundi has drip-fed its London-listed products onto the Stock Exchange since May this year, with the latest range being the first time it has introduced emerging market propositions. These ETFs follow MSCI indices in Brazil, China, India, Asia, Latin America, Eastern Europe ex Russia as well as the MSCI Emerging Markets index.
Today, HSBC launched its MSCI Emerging Markets ETF, another provider that uses physical replication to track the index.
Investors shouldn’t invest on geography alone but the debate over whether to allocate to developed or emerging markets cannot be avoided. Their relative economic story has moved from developed to emerging and back to developed again as market volatility rocketed earlier this year.
The desire for emerging market exposure is still strong with investors as is their need to reduce the effects of the daily market peaks and troughs so liquidity is paramount. And it is this combination that helps explain the ETF route into Asia Pacific ex Japan, emerging Europe, the BRIC countries et al.
“Such launches”, explains Peter Sleep, senior portfolio manager at Seven Investment, “shows where investors are looking. It is also a good way to get access to markets without paying the tax that you would if you invested directly.”
Sleep is referring to the tax issues that work against investors buying directly into some of these markets. For example, it is not straightforward for UK investors to buy China A-shares, there is a prohibitive 2% tax levied on entry into the Brazilian market and with India there are Capital Gains Tax implications for direct entry.
ETFs are one of the ways of entering emerging markets simply, cheaply and effectively so expect more of the same to follow.
