When investing abroad, focus on the basics


In view of the fear of inflation and the rising yields on government bonds, investors are turning away from equities, which could also lead to price setbacks abroad. Investors need not shy away from emerging markets (EM) by getting back to fundamentals with funds like this Invesco FTSE RAFI Emerging Markets ETF (PXH).

PXH seeks to track the investment results of the FTSE RAFITTM Emerging Index. The Fund will generally invest at least 90% of its total assets in the securities that make up the Underlying Index and in ADRs and GDRs that represent securities in the Underlying Index.

The Underlying Index consists of securities of companies domiciled in countries classified as emerging markets according to the FTSE country classification definition. The Underlying Index contains securities of companies selected from the constituents of the FTSE Emerging Total Cap Index.

“PXH is linked to an RAFI-weighted index that determines components and individual security weights based on fundamental metrics such as book value and cash flow,” the ETF database analysis notes. “As such, PXH breaks the link between stock price and security allocation and may be attractive as an alternative to market cap weighting systems, which have numerous potential downsides.”

EM central banks tinkering with experimental policies

A constant challenge when investing abroad is central bank policy.

Many central banks are adjusting monetary policy to adapt to the changing economy.

“In a recent note, David Lubin, head of emerging market economics at Citigroup Inc., sought to understand why some developing countries are ‘getting away’ with experimental policies that would once have sent global investors fleeing fears of an erosion of central bank independence. skyrocketing inflation and currency weakness. Indonesia, for example, monetized its debt last year by having its central bank buy bonds directly from the state,” according to a Bloomberg article.

“South Korea has cut interest rates to near zero and has regularly bought government bonds that resemble quantitative easing in all but name,” the article added. “These two nations were the biggest disasters during the Asian financial crisis. Two decades later, the markets are calm.”

For more news and information, see Innovative ETF channel.


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