Why the sell-off in emerging markets will only get worse

Investing & Retiring

Emerging market stocks are sinking, and one portfolio manager is urging more caution.

Chad Morganlander, portfolio manager at Washington Crossing Advisors, told CNBC’s “Trading Nation” that emerging markets could fall further. Here’s why.

• One large emerging markets-tracking ETF, the EEM, has fallen 1.5 percent this year amid a gradually strengthening U.S. dollar and concerns around trade skirmishes escalating between the U.S. and its trade partners. The ETF is down nearly 11 percent from its year-to-date high hit in late January.

• As China attempts to decelerate its credit growth, the process may have an overall dampening effect on global growth, but particularly across emerging markets.

• The dollar is also a concern in this arena. As the Federal Reserve hikes interest rates going into the rest of the year, “value” firms in the U.S. over growth company will likely benefit, while emerging markets will feel the pain as the dollar gradually grinds higher against foreign currencies.

Bottom line: Emerging markets may feel further pain as the U.S. dollar gains, and it would be prudent to go underweight the asset class, one portfolio manager argues.

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