Many of the top-performing
of 2012 are focused on emerging markets all around the world in a
possible sign the global economy is slowly and steadily normalizing
and setting up for a period of sustained expansion.
Gone from this year's Top-10 list are the U.S. Treasury funds
that dominated the selection a year ago, a reflection of continuing
concern about the on-again/off-again economic recovery that has
sent investors into the safety of government debt time and time
again since the market crashed in 2008.
Investors appear to be starting to loosen their grip on
dollar-denominated assets such as Treasurys and U.S. equities, and
are instead again moving into riskier assets. Indeed, returns on
top-performing countries such as Turkey, India, the Philippines and
even China had foreign-exchange winds at their back, as their
currencies strengthened against the dollar, pumping up gains.
The value of the Chinese yuan against the dollar looms largely
as a harbinger of the macro environment. Every time the global
economy has shown stability and improved growth prospects, the yuan
appreciates. Investors should take note that, firstly, the
Guggenheim China Real Estate ETF (NYSEArca:TAO) returned 53 percent
in 2012 and, secondly, 50 basis points of that is due to a firmer
The iShares MSCI Turkey Index Fund (NYSEArca:TUR) was the
fund of 2012, though it's been clear that the Middle Eastern nation
that has been called "an island of order in a sea of chaos" by
geopolitical consultant George Friedman has been on a roll for
quite some time. Its economy is rapidly developing, and it led the
pack of single-country ETFs at the end of the first half.
If Turkey is heralded as an ongoing success story with vibrant
manufacturing and service sectors, then Egypt has to be the
comeback story of 2012.
The Market Vectors Egypt ETF (NYSEArca:EGPT) lost half its value
in 2011, as the "Arab spring" and the fall of strongman Hosni
Mubarak reverberated through the region, causing huge uncertainties
including a spike in oil prices that slowed the global economy even
before the eurozone debt crisis and unsettling U.S. budget
negotiations nearly brought on renewed recession around the
But this year, EGPT has retraced a healthy chunk of is
year-earlier losses, climbing about 45 percent.
It's hard to say what happens next in the Middle East's
most-populous country, but for now it does seem to be exhibiting
all the excitement of a "deep value" play in global investment
One country that has benefited from the Chinese economic story
is the Philippines, which has absorbed some of the outsourcing from
China as businesses domiciled in the world's second-largest economy
look to keep a lid on production costs.
The iShares MSCI Philippines Investable Market Index Fund
(NYSEArca:EPHE) has shot up more than 45 percent this year, with
almost 9 percentage points of that performance in the currency
Funds focused on other satellite Asian countries such as
Malaysia and Vietnam have done similarly well too. For example, the
iShares MSCI Malaysia Index Fund (NYSEArca:EWM) is up 11 percent
this year and the Market Vectors Vietnam ETF (NYSEArca:VNM) has
jumped about 14.5 percent.
Even developed countries in Asia-such as Japan, Australia, Hong
Kong and Singapore-are getting in on the action, as the nearly 44
percent jump in value of the iShares FTSE EPRA/NAREIT Developed
Asia Index Fund (NYSEArca:IFAS) clearly shows.
Is India The Next Big Thing?
The Indian growth story came into focus too in 2012, as the
EGShares India Consumer ETF's (NYSEArca:INCO) nearly 54 percent
jump demonstrated. The Market Vectors India Small Cap Index ETF
(NYSEArca:SCIF) was another India-focused fund that showed that
country's prospective story. The fund is up 26 percent this
Even though India has struggled with the slowest growth rate in
a decade, slower exports and high inflation relative to other BRIC
nations, the country has managed to bring inflation into
control-it's projected to drop to 7.25 percent this year from as
high as 12 percent in 2010-and continue to implement reforms and
infrastructure improvements, Van Eck's marketing director Rafael
"Why that's so key is that now that inflation has started to
come in, it's going to be easier for the RBI to lower interest
rates in India," Cordero said, noting that lower rates would
encourage sidelined companies to start spending some of the money
they have on their balance sheets.
"Domestic consumption could be huge for this country," Cordero
added, arguing that a booming middle class should drive India's
economic growth ahead.
Indeed, the boom of India's middle class started off as a
"trickle" and amounted to little more than 50 million people in
2008, but many analysts project that as many as 500 million people
will constitute the country's middle class eight years from
"That'll be a huge engine for GDP growth in India," Cordero
However, few investors seem tuned into the local-consumption
story in the emerging markets. INCO, for instance, has just over $7
million in assets even if its performance is among the year's
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