While U.S. equities have struggled to gain meaningful traction this year, several emerging markets have delivered strong outperformance. A large part of that strength has come from renewed interest in commodities and non-dollar assets. Buying commodities, from gold to industrial metals, often acts as a short on the dollar, and that dynamic has increasingly benefited emerging markets.
The performance gap tells the story. As of the Jan. 29 close, the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM) was up 10.5% year-to-date (YTD), compared to just a 1.8% gain for the SPDR S&P 500 ETF Trust (NYSEARCA: SPY). In South Africa, currency strength has further amplified returns. The South African rand has gained nearly 25% against the U.S. dollar over the past year, helping push the iShares MSCI South Africa ETF (NYSEARCA: EZA) up almost 15% YTD and more than 84% over the past 12 months.
