Investors’ Bliss or Burden?
The recent diplomatic talks between President Biden and Xi Jinping may have soothed some anxieties about geopolitical tensions in China, but the surge in iShares Core MSCI Emerging Markets ETF (IEMG) may not be as promising as it seems.
Roots of Recent Growth
The latest upswing in IEMG appears to be linked to the weakening of the U.S. dollar, commencing from November 1.
The Dollar’s Dance
The strength of the dollar is largely influenced by the U.S. Federal Reserve’s monetary policy and the volatility in Eastern Europe and the Middle East.
Implications of a Weak Dollar
A weakened dollar may bode well for IEMG, as it has historically had an inverse relationship with the ETF’s performance.
Geopolitics and IEMG’s Holdings
The tensions between the U.S. and China directly impact IEMG’s top holding, Taiwan Semiconductor Manufacturing Company (TSM), which plays a critical role in global semiconductor production.
The Risks Ahead
The uncertainty surrounding U.S.-China relations, combined with internal economic challenges in China, poses a significant risk to IEMG’s future growth.
Unsustainable Upside
Considering the unfavorable macroeconomic factors and uncertain geopolitical landscape, the sustainability of IEMG’s growth is in question.
Seeking Alternatives
Investors looking for exposure to emerging markets may want to explore alternatives such as SPDR Portfolio Emerging Markets ETF (SPEM) as a way to mitigate risks associated with IEMG.
