As measured by the relevant
, 2012 was a good year for the CIVETS nations - the combination
of Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
At the ETF level, only Indonesia can be considered a true 2012
laggard, but some of the other CIVETS constituents offered
pleasant surprises throughout the just completed year.
For example, South Africa delivered impressive returns to
investors despite some late-year labor strife at its palladium
mines. Egypt fought off domestic and regional geopolitical
headwinds for much of last year to treat investors to astounding
ETF returns. Making the returns offered by the ETFs tracking
Egypt and South Africa all the more impressive is stunningly high
unemployment rates in both countries.
Black South Africans
saw an unemployment rate of 41 percent last
. Unemployment among Egypt's young people is roughly double the
12 percent national average.
Those are two examples of the fact that each CIVETS nation
faces its own issues in the year ahead. Obviously, investors need
to evaluate those issues before falling in love with one of many
catching emerging markets acronyms. Some of those issues will be
addressed here along with the boldness of predicting how the
CIVETS will perform this year by putting them in order of
Market Vectors Vietnam ETF (NYSE:
) Picking which ETF should be in the top spot among the CIVETS
group is made difficult because a strong case can be made that
the fund that follows VNM on this list could prove to be the best
performer this year. Additionally, last year's laggard,
Indonesia, could come roaring back and take on a CIVETS ETF
At the moment, VNM is a credible contender for being the best
CIVETS ETF performer in 2013. The fund has shaken off
the effects of a sharp pullback last Friday
and is already one of the top-performing emerging markets ETFs in
the new year.
The cautionary tale is that VNM started 2012 with a bang only
to wilt for much of the second and third quarters. However, VNM
could be in store for a stellar year. Yes, the country is coming
off its slowest economic growth year in 13 years, but investors
know that. Inflation is muted by Vietnam's standards and
investors know that as well.
VNM can take a big leap this year if Vietnamese policymakers
move forward with plans such as increasing trading bands at local
stock exchanges, cracking down on corruption and boosting foreign
ownership limits in Vietnamese banks. The bank issue is pivotal
because Vietnamese banks are suffering through a significant bad
loan problem and it could take
increased foreign investment
to prop up some bad Vietnamese banks.
That would be a boon for VNM because financial services names
account for about 45 percent of the ETF's weight.
iShares MSCI Turkey Investable Market Index Fund (NYSE:
) The iShares MSCI Turkey Investable Market Index Fund could
easily be in the top spot on this list. That is where the ETF
finished among the CIVETS in 2012 with a gain of about 60
percent. Banking on another year of that type of performance
could lead to some disappointment, but the pieces are in place
for TUR to have another strong year and perhaps reign as the
CIVETS ETF king once again.
flap with Standard & Poor's
, Turkey is pushing for an investment-grade rating, something it
was able to land from Fitch Ratings last November. Turkish banks
are healthy, and that is important to TUR's fate because
financials account for 51.5 percent of the ETF's weight.
Favorable demographics and the potential for a job-creating
energy boom also bolster the case for TUR. Perhaps the worst
thing that can be said of the ETF right now is that the ETF has
the look of an overbought momentum stock. Then again,
the ETF's P/E ratio of around 14
is below that of the iShares MSCI Emerging Markets Index Fund
), implying Turkey trades at a bit of discount to the broader
emerging markets universe.
In the case of TUR, it pays to remember that what goes up does
not have to come down exactly when naysayers want it to and being
on the wrong side of momentum can lead to some savage beatings.
Just ask anyone that shorted Amazon (NASDAQ:
) in the $180-$200 area.
Market Vectors Indonesia ETF (NYSE:
) A faltering rupiah and a widening account deficit
were among the issues
that contributed to the woes of IDX last year. Thus far in 2013,
the ETF has not been awful, but it has not done much worth
writing home about, either.
On a technical basis, IDX could rejuvenate investors'
confidence in the ETF by notching several consecutive closes
above $29 and turning that resistance into support.
There is a strong fundamental story here as well. GDP growth
is expected to be 6.4 percent this year. Said another way,
Southeast Asia's largest economy is likely to have the best
growth rate among the ASEAN nations this year. Additionally,
investors should not overlook Indonesia's strong domestic
consumption that drives over 60 percent of GDP.
Global X FTSE Colombia 20 ETF (NYSE:
) Appearing in the bottom half of the CIVETS list does not mean
the Global X FTSE Colombia 20 ETF is in for a rough 2013. It
merely means the funds ahead of it have the potential to deliver
superior returns this year. Last month, the central bank had to
lower its full-year 2012 GDP estimate to 4 percent to 4.5 percent
from 4.8 percent due to slack third-quarter growth.
The upshot is with inflation and benign and the central bank
looking to weaken the peso, another rate cut could be on the
horizon. Already tied with Peru for Latin America's (among major
economies) lowest interest rates at 4.25 percent,
analysts see more rate cuts on the horizon
The government balance sheet is strong as the country finished
2012 with a record $37.46 billion in foreign currency reserves,
according to Colombia reports
Risks to GXG's upside in 2013 include weakness in the
commodities markets as materials and energy names combine for 35
percent of the ETF's weight. Additionally, the government
deciding to engage in further dilutive share sales of Ecopetrol
), the state-run oil company, could weigh on GXG because that
stock is the fund's top holding with a weight of over 14
iShares MSCI South Africa Index Fund (NYSE:
) The thing about all the labor unrest South Africa has dealt
with in recent months is that it usually boosts prices of the
affected metals. For example, the ETFS Physical Palladium Shares
) is trading near a new 52-week high today. The ETFS Physical
Platinum Shares (NYSE:
) has gained over five percent in the past week.
The other thing is that EZA often displays an inverse
relationship to PALL and PPLT amid labor strife, meaning the ETF
falters. Last week, Fitch Ratings downgraded South Africa's long
term foreign currency credit rating to BBB from BBB+, the long
term local currency credit rating to BBB+ from A and the short
term credit rating to F3 from F2.
Not surprisingly, the ratings agency cited
rising political and social tensions
as catalysts for the downgrade.
All of this is not to say that EZA cannot have a good year,
but there are preferred options among CIVETS ETFs. EZA sports a
beta of 1.42 against the S&P 500,
according to iShares data
. TUR's beta is 1.89, but Turkey is clearly the safer bet right
Market Vectors Egypt ETF (NYSE:
) After tumbling from above $14 in October to below $12 in
December, EGPT has bounced and is up almost seven percent in the
past month. A better than 44 percent gain for EGPT and a gain of
more than 49 percent for Cairo-listed stocks shows EGPT and
Egyptian can, at times, be impervious to geopolitical
How much longer that theme remains in tact is anyone's guess
and that is all it is: A guess. Egypt is running out of
foreign currency reserves
. That is plaguing the Egyptian pound and recently lead to a
surge in credit default swaps used to ensure Egyptian debt
against default. In December, S&P lowered Egypt's credit
rating to B-, six levels below investment grade.
Translation: Egypt must now contend with a weak currency,
higher borrowing costs and high unemployment. The World Bank is
forecasting Egyptian GDP growth of just 2.6 percent this year,
meaning investors can capture superior growth rates with less
risk throughout the emerging world.
For more on ETFs, click .
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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