Kurt Brouwer November 12th, 2009

Jason Zweig asks a very good question in a Wall Street Journal column:

ETFs Causing Bubble in Emerging Markets? (Wall Street Journal, November 10, 2009, Jason Zweig)

U.S. investors have pumped roughly $26 billion into emerging-markets funds so far this year. Of that, $15 billion came in through exchange-traded funds — portfolios that hold every stock in a market benchmark with utterly no regard to price.

…As money pours into the ETFs, they must mechanically match their holdings to those in the emerging-market indexes. That forced buying drives up stock prices, attracting still more new money into the ETFs, spiraling stock prices even higher.

…Consider Brazil. The iShares MSCI...