The Federal Reserve’s ultra-loose monetary policy post financial crisis led to yield hungry investors flocking to emerging markets. While risky, emerging markets offer attractive yields when compared to Treasuries. However, sentiment on emerging markets turned negative in the summer of 2013 as the Fed began winding down its bond purchases.
By 2014 emerging markets stabilized but there were renewed concerns in recent weeks as the Fed hinted at a summer rate hike. The Fed hiked benchmark interest rates for the first time in more than a decade in December 2015. But since the start of this year, the Fed had turned dovish. The Fed minutes announced in the April meeting came as a huge surprise. In the minutes, the Fed suggested that it was open to a rate hike in the summer itself. This was reiterated by the Fed Chair in a speech shortly after the release of the minutes.
However, the plans for a summer rate hike have been delayed following Friday’s weak jobs report. And this should benefit emerging markets. Canadian investors can gain exposure to emerging markets debt through the BMO Emerging Market Bond Hedged to CAD Index (ETF) (TSE: ZEF). ZEF currently offers a dividend yield of 4.29%. This year it has gained nearly 4%.
