Investing in emerging markets comes with risks in a
taper-trodden 2014. These markets enjoyed heavy investment when
interest rates were ultra low in the developed world, but things
are fated to take a sharp turn thanks to the beginning of the end
of a cheap-dollar era (read:
3 ETFs Tumble Most on Emerging Market Sell-Off
The fear of less hot money inflows, tumbling currency, current
account deficit and slowing internal growth are common problems for
most of the nations. As a result, investors have begun to flee the
space to start this year.
While many region-specific ETFs plunged severely in the
year-to-date frame (thanks to their own internal crisis), the slump
in the biggest and broader emerging market ETF -
Vanguard FTSE Emerging Markets ETF
) - was relatively low, and quite shockingly that too was as deep
Amid such a turbulent situation, a handful of emerging market ETFs
kicked off 2014 on stronger footing and have held up pretty well so
far. First of all, some smaller emerging markets/frontier markets
are giving outstanding performances this year.
Market Vectors' Egypt
Vietnam ETF (
). EGPT retuned about 28%, which is the best in the overall
emerging market space, while VNM is up close to 17.7% this year.
Basically, improvement in both the political and the economic
backdrop is propelling this undervalued Egypt ETF. On the other
hand, Vietnam continues to be the main beneficiary of the migration
of low-end manufacturing out of China as the wage level of the
former is half of the latter.
Also, the shift in China's strategy to enhance domestic consumption
is going to give a big-time boost to Vietnam's outsourcing industry
How Frontier Market ETFs Surged as EMs Plunged
However, let's not consider these frontier markets and look for
some top performing 'traditional' emerging markets, and briefly
highlight some reasons behind their surge (read:
iShares Plans New Type of Emerging Market ETFs
Leaving many investors in utter shock, the Indonesian ETF was off
to a stunning run this year despite inflation, current account and
currency issues. The rupiah has been emerging as Asia's best
performing currency in 2014, as per
Inflation and current deficits are also falling. Though the
bank of Indonesia slashed its 2014 growth target from 5.8-6.2% to
5.5-5.9% in the wake of relatively weak consumption and investment,
it still is way higher than the projected growth rate offered by
several developed nations.
Indonesian shares saw the biggest rally in Asia following Vietnam
as net inflows by foreign investors rose to about $907 million, the
maximum in regional markets, as per
. Moreover, government has offered tax incentives for building
factories and attracting foreign investments in ports and airports.
The country's current-account deficit is expected to fall to 2.5%
this year, from about 3.3% last year, according to Bank of
Indonesia. Also, Indonesia is due for its parliamentary election in
April and presidential election in July.
Thus, the possibility of an influx of campaign spending is more in
the companies having more domestic exposure especially which are
engaged in food, consumer staples and media businesses, as per
As a result,
Market Vectors Indonesia Small-Cap ETF (
was the second best emerging market ETF this year adding about
iShares MSCI Indonesia Investable Market Index Fund
Market Vectors Indonesia Index ETF (
also returned 24.78% and 20.0%, respectively, securing places in
the top-five emerging ETF performers list.
The Philippines economy has also shown promise, having expanded at
the fastest clip
since the 1950s
over the last two years. Than nation logged GDP growth of 7.2% in
2013 on top of 6.8% in 2012 despite the multi-billion peso wreckage
from Super Typhoon Haiyan (which hit the island nation in early
November). Philippine growth rate came a little short of the
Chinese growth rate of 7.7% in 2013.
iShares MSCI Philippines Investable Market Index
), the only pure-play ETF focused on the Philippines market, has
gained about 8.32%. The country has reiterated its growth
projection of 6.5% to 7.5% for this year, though some predict that
the country may see growth less than 6.0% this year.
, growth will be helped by reconstruction activity in Philippines
Solid Growth Puts Philippines ETF in Focus
). Also, positive January
on remittances from Filipinos abroad and the World Bank's
optimistic view on the nation this year are other factors behind
the ETF's nice run.
Thailand has been seeing quite a bit of turmoil in recent times
thanks to a prolonged political mayhem which in turn cast a shadow
on its near-term growth outlook. The state planning agency last
month reduced its GDP growth forecast for this year to 3% to 4%
from 4% to 5% range which seems still respectable after so much
political gridlock (read:
Where Does the Thailand ETF Go From Here?
However, in order to restore some confidence in the nation's
financial market and boost the politically troubled growth rate,
Thailand slashed its one-day bond repurchase rate by
to 2%. Prior to this, the nation went for a rate cut last November
as political unrest crippled the demand for its all-important
tourism sector and the central bank is striving hard to boost other
sectors in the economy, especially consumption and business
investment. The rate has now touched its lowest point since
A decent inflation rate (presently at 1.96%) helped the Bank of
Thailand to take such a step. Also, a likely lift in emergency
rule imposed in January 2014 for a timeframe of 60 days gave
the much-needed boost to the Thai stock market. The reduced
interest rate spread cheers among investors. The core Thailand ETF,
iShares MSCI Thailand Investable Market Index Fund
, has advanced 6.74% this year.
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MKT VEC-EGYPT (EGPT): ETF Research Reports
ISHARS-MS INDON (EIDO): ETF Research Reports
ISHARS-MS PHILP (EPHE): ETF Research Reports
MKT VEC-INDONES (IDX): ETF Research Reports
MKT VEC-INDO SC (IDXJ): ETF Research Reports
MKT VEC-VIETNAM (VNM): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
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