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EM in Crisis?


FRAN RODILOSSO: The prospect for emerging markets debt as we head into the second quarter of 2014 is mixed. There has been a lot of talk about a crisis in emerging markets. In our view, the emerging markets are not a single asset class, nor obviously a single country or region. There are pockets in the world that are in a period of crisis. Russia and Ukraine represent significant geopolitical crisis, and the financial markets in those countries and some surrounding countries have reacted very negatively. Venezuela has been in a political crisis for some time. Prices of Venezuela’s debt, however, have adjusted downward over the course of the last one to two years. There are other countries that have been thrown into the crisis category over the last year: Indonesia and Brazil, for instance. Those countries were undergoing significant economic challenges last year but their markets have adjusted in that interest rates moved higher and their currencies weakened. They still have challenges with current-account deficits, but the movement of their currencies and rates have allowed for some adjustments.


To put it into perspective, through March 18 of this year, the Market Vectors® Emerging Markets Aggregate Bond Index  that one of our ETFs tracks is up about 0.87% year-to-date. Although 10-year treasuries are up by more than 2% on a total return basis, emerging markets are not far behind the S&P 500 Index's little more than 1% rise year-to-date. In other words, this positive performance does not tell the story of an entire market in crisis.


 

China


RODILOSSO: I would be remiss to talk about the emerging markets crisis or potential crisis without discussing China, which has grabbed so many headlines last year and this year. China is raising concerns on several levels. At the margin, China has been a huge source of demand for raw materials which impacts the economies of many other emerging markets. People are concerned about the rate of slowdown of the Chinese economy. More precisely, the talk has been around the excessive lending in China's economy and the beginning of corporate defaults. There has been one local bond and a loan by another issuer that have defaulted. Albeit small, China’s defaults have become newsworthy globally and people are concerned that these are signs of what's to come on a larger basis.


My view on China is that there are some rocky roads ahead. There are pockets of the economy where leverage is excessive, but China is a very large economy and more diversified than what may be reflected in its equity indices. Corporate defaults do not mean that all corporations in China are over-leveraged or are unable to pay their debts. China is a country that bears watching and brings certain risks and potential opportunities. That's our message on emerging markets: when there's bad news, emerging markets tend to re-price more quickly than we as investors would like to see. Those re-pricings may bring in compensation for some of the risks that are being taken.


 

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IMPORTANT DISCLOSURE


The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. For more information about Van Eck Funds, Market Vectors ETFs or fund performance, visit vaneck.com. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com  


 

Principal International and Emerging Markets Risk Factors: Fixed income securities are subject to credit risk and interest rate risk. High yield bonds may be subject to greater risk of loss of income and principal and are likely to be more sensitive to adverse economic changes than higher rated securities. International investing involves additional risks which include greater market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability. Changes in currency exchange rates may negatively impact the Fund’s return. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability. Investors should be willing to accept a high degree of volatility and the potential of significant loss. Diversification does not assure a profit nor protect against loss. Please see the Market Vectors Emerging Markets Aggregate Bond ETF (the “Fund”) prospectus for full disclosure information.


Index performance is not illustrative of Fund performance. Fund performance current to the most recent month end is available at marketvectoretfs.com

Investing involves risk, including possible loss of principal. An investor should consider investment objectives, risks, charges and expenses of the investment company carefully before investing. Bonds and bond funds will decrease in value as interest rates rise. Please read the prospectus and summary prospectus carefully before investing.


The "Net Asset Value" (NAV) of a Market Vectors Exchange Traded Fund (ETF) is determined at the close of each business day, and represents the dollar value of one share of the fund; it is calculated by taking the total assets of the fund, subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as the ETF 's intraday trading value. Market Vectors ETF investors should not expect to buy or sell shares at NAV.


Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large, specified blocks of shares called "creation units" and otherwise can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading Fund shares in the secondary market. Past performance is no guarantee of future results. Returns for actual Fund investments may differ from what is shown because of differences in timing, the amount invested, and fees and expenses.


 

The Market Vectors EM Aggregate Bond Index is comprised of sovereign bonds and corporate bonds denominated in U.S. dollars, Euros or local emerging markets currencies, and includes both investment grade and below investment grade rated securities.


The S&P 500 Index consists of 500 widely held common stocks covering in the leading industries of the U.S. economy.


 

 

 

 

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