With the current issues in the American market and European
woes seemingly never-ending, we are once again reminded of how
susceptible many emerging markets are to developed nations'
Several emerging markets-like China-are very dependent on
exporting goods to industrialized nations in order to power their
growth, and when these product destinations are struggling, many
developing nations can be in for a rough ride.
This situation doesn't just afflict China either, as a number
of other emerging markets, both large and small, are particularly
impacted by this trend. Among just some of the markets that have
to play off of developed market trends include several natural
resource exporters in South America like Brazil, as well as high
tech manufactures in Asia such as South Korea or Taiwan.
This is rather unfortunate as many investors look to emerging
markets to provide their portfolios with growth during these
troubling times. After all, even with these export woes, many top
emerging markets are growing at a 5%+ rate, a level that
virtually any developed nation would kill for (read
Forget China Buy These Emerging Market ETFs
Fortunately, not all emerging markets fall into this export
trap, as there are several that rely on domestic consumption in
order to power growth. These markets, since they are so focused
on domestic events, could thus be better insulated from global
shocks and developed market issues, making them potentially
better plays in this economic environment.
In order to play these domestically-focused emerging market
economies we are utilizing data from the
on household final consumption expenditures as a percentage of
GDP. This metric represents the market value of all goods and
services, including durables and imputed rent, and broadly
represents what percentage of the economy is devoted to
Admittedly, this isn't a perfect measure of domestic
insulation from global shocks, but it is arguably a solid
predictor of which nations are able to hold up their economies
when others a world away are facing issues (see the
Guide to Small Cap Emerging Market ETFs
With this caveat, we highlight three
below of countries that devote more than 75% of their GDP to
household final consumption, potentially offering up some
interesting choices for investors looking to emerging markets
that are driven by developing nations instead of their First
Market Vectors Egypt Index ETF (
Barely making the 75% cut, Egypt is a nation in transition
thanks to a move towards 'Democracy' following the 'Arab Spring'.
Although the country struggles with this shift, the nation does
have a great deal of positives such as a young population,
enviable geographic position, and a solid growth rate.
The country can easily be played with the Market Vectors Egypt
ETF EGPT, a fund that tracks the Mark Vectors Egypt Index. This
benchmark costs investors 94 basis points a year in fees and
gives exposure to just over 25 firms in total (read
Top Three Emerging Market Dividend ETFs for
Income and Growth
From a sector perspective, financials do take up a big chunk
of assets, followed by telecoms and basic materials. However,
large caps account for just over half the assets, so the product
should have a pretty hefty tilt towards pint sized
iShares MSCI Philippines Investable Market Index Fund (
Another economy that relies on consumption is the island
nation of the Philippines. While the country may not rank highly
on ease of doing business surveys, the nation does have a huge
population, many of whom who speak English, and a low labor cost.
This combo has made it increasingly popular among a number of
businesses, helping to boost the country's economy in the near
These trends can be targeted with EPHE, a relatively
inexpensive ETF that charges just 59 basis points a year in fees.
The ETF holds over 40 stocks in its basket, but allocates roughly
25% to the three biggest firms in the benchmark, so there is some
concentration risk (read
Three Emerging Market ETFs to Limit BRIC
From an industry look, diversified industrials take the top
spot at about a quarter of total assets, while real estate and
banks make up another 30% as well. Beyond that, telecoms also
make up a sizable chunk, although there is definitely a large cap
tilt in this fund.
iShares MSCI Turkey Investable Market Index Fund (
Thanks to its important location at the crossroads of Middle
East and West, Turkey is now on many investors' radars. While
inflation might be relatively high in the country, it too has a
young and growing population as well as a relatively low debt
load and a GDP per capita that ensures most of the nation is well
within the consuming class.
While the country is increasingly popular among both tourists
and investors, only one ETF currently targets the country, TUR.
This fund tracks the MSCI Turkey Investable Market Index,
charging 59 basis points a year in fees but holding a robust 94
stocks in its basket.
Financials do dominate the fund at just under 50% of the total
assets, but the next few sectors are very consumer oriented
including staples at 13%, and also telecoms at 9% of the fund
Five Emerging Market Infrastructure ETFs for the
The ETF is also pretty large cap oriented, but it is actually
the most popular on the list with over 200,000 shares in volume a
day, suggesting tight bid ask spreads for investors seeking a
different way to play emerging markets.
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MKT VEC-EGYPT (EGPT): ETF Research Reports
ISHARS-MS PH IM (EPHE): ETF Research Reports
ISHRS-MSCI TURK (TUR): ETF Research Reports
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