After growth slowdown, capital flight and choppy trading in
the past few months, the trend has finally started to reverse for
emerging markets. Many emerging market stocks have rebounded from
their recent lows and are moving higher.
The slew of positive news, particularly the latest Chinese data
has spurred investors' confidence in these markets (read:
India ETFs Rebound on Central Bank Steps
Signs of Hope?
Investors are turning bullish on emerging markets thanks to
strong trade data for August from China.
Exports rose more than expected to 7.2% in August when compared
to the year-ago time frame, boosted by strong demand from the
U.S. and other major export markets. This is up from the 5.1%
increase in July and 3.1% decline in June. Meanwhile, imports
lagged expectation with a gain of 7% but were down from 10.9% in
July. This led to widening of trade surplus to $28.6 billion from
$17.82 billion in June.
Further, inflation in China came in at 2.6% for August, in-line
with the market expectation and just a percentage point above the
July level. The inflation has remained below the government
target for eight consecutive months (read:
3 Emerging Market ETFs Still Up in 2013
These numbers are especially encouraging as they suggest that the
slowdown in China seen in nine of the past 10 quarters might
finally be over.
Apart from China, the worst hit economies - India, Indonesia and
Brazil - are lately showing some signs of hope, driving emerging
markets higher. According to the data released by
HSBC and Markit Economics
, emerging markets manufacturing activity rose slightly in
August, marking the first rise since March.
The upbeat Chinese data unsurprisingly led to bullish trading
conditions in the emerging markets ETFs pushing major funds
higher. The two ultra-popular funds targeting broad emerging
- were up nearly 3% yesterday compared to gains of roughly 1% for
the broad U.S. market (
) and about 1.37% for the total world (
Someother ETFs tracking emerging markets, saw more strength than
the two popular funds and led the way higher. Below, we highlight
three such ETFs that have enjoyed huge rally from this trend, and
could be worth consideration, if China continues to rebound (see:
all the Emerging Markets ETFs here
MSCI Emerging Markets Consumer Discretionary Sector ETF (
This fund provides exposure to the consumer discretionary sector
of broad emerging markets by tracking the MSCI Emerging Markets
Consumer Discretionary Index. The fund has been able to gather
only $2.6 million in AUM so far and average daily volume is also
light with just 4,000 shares. Further, the ETF is a bit
expensive, charging 68 bps in fees per year.
With holdings of 91 securities, the product is somewhat
concentrated on its top 10 holdings with nearly 49% of total
assets. The fund is heavily exposed to South Korean firms making
up for 33.48% share followed by South Africa (18.13%). Other
countries such as China, Brazil, Taiwan, Mexico, Malaysia, India,
Indonesia and Hong Kong make up a nice mix in the fund's
The ETF added about 5.11% after the China data came out, though
the product was down about 2.72% in the year-to-date time frame.
The product has a Zacks Rank of 3 or' Hold' rating.
EGShares Emerging Markets Dividend Growth ETF (
This is the new fund in the emerging market space targeting high
income paying securities by tracking the FTSE Equal Weighted
Emerging All Cap ex Taiwan Diversified Dividend Yield 50 Index
EGShares Launches New Emerging Market Dividend
In total, the product holds 50 securities in its portfolio,
spread across a variety of sectors. Financial and energy take the
top two spots at nearly 20% and 17%, closely followed by consumer
goods (14.6%) and industrials (13.5%). From a national
perspective, China (19.5%), South Africa (17%), Brazil (15.8%),
and Indonesia (10.9%) take the top four spots.
The ETF has accumulated $2 million since its inception two months
back and charges 85 bps in fees per year. Volume is also light.
EMDG surged 4.50% on the day but lost 0.4% so far in the year.
First Trust Emerging Markets AlphaDEX Fund (
This fund provides a slightly active choice in the emerging
market space as it uses AlphaDEX methodology to select the stock.
The methodology seeks to narrow the developing nation space to
only the best positioned companies. It ranks the stocks by
various growth and value factors, eliminating the bottom ranked
25% of the stocks.
This approach produces a basket of 149 stocks, which is widely
spread across each sector and security. Chinese firms dominate
the portfolio with 31.22% share while Brazil, Thailand, Turkey,
Poland and others get single-digit allocations (see more in the
The fund has amassed $154.3 million in its asset base while it
trades in good volume of nearly 160,000 shares per day. The ETF
charges 0.80% in expense ratio. FEM gained 3.6% on the day but is
down 6.83% year-to-date.
Emerging markets ETFs have faced tough times this year,as
concerns over widening current account deficits, sluggish
currencies, rising inflation and political disorder hits the
shares in these nations (read:
3 Currency ETFs Crushed in Emerging Market
However, recent Chinese data and some positive news from across
the emerging economies have been encouraging, suggesting that the
worst might be over. This could help emerging stocks and the
related ETFs to move higher at least in the near term.
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ISHARS-EMG MKT (EEM): ETF Research Reports
EGS-EM DIV (EMDG): ETF Research Reports
ISHARS-M EM CDS (EMDI): ETF Research Reports
FT-EMG MKT AD (FEM): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
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