The equity markets began the year 2012 on a strong note but as
the Euro-zone situation worsened and emerging markets' slowdown
appeared much worse-than-expected, the investors rushed into "safe
Second quarter of the year was bad for most emerging markets in
particular, due to 'risk-off' trades; however some of the markets
continued their solid performance.
As we are already in the second half of the year, it is time to
look at the best performing markets and related single-country ETFs
of 2012 so far and analyze whether they will be able to continue
their run during the rest of the year. (Read:
Q2 ETF Asset Report: Bond Funds Lead the Charge
Below we highlight the five top performing single-country ETFs
Market Vectors Egypt Index ETF (
Up 37.9% YTD
Egypt stock market and the ETF had a disastrous performance last
year due to the political turmoil. The fund rebounded this
year on hopes of a peaceful election process, but the run has been
far from smooth.
The political situation now seems to be stabilizing in Egypt,
with the election of Mohamed Morsi of the Muslim Brotherhood, as
the first democratically elected leader of the country. However, it
would not be easy for him to put in place a stable governance
system with the power-seeking judiciary and the military as
Last month S&P put Egypt's long-term debt on watch for
a possible downgrade in view of significant uncertainty in the
political transition process. (Read:
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GDP growth fell from 5.1% in 2010 to 1.8% last year, and is
expected to come down further to just 1.5% this year, according to
IMF. Foreign exchange reserves have plunged since the turmoil began
and the currency has been weak.
The country needs some critical economic reforms to revive
growth and bring down high unemployment (above 12% currently),
swelling fiscal deficit and rising inflation rate (~9%), which is
going to be difficult.
Attracting foreign investments and tourists is also not going to
be easy in view of the volatile political situation. Hence the
outlook for the Egypt EYF does not look very promising, going
EGPT tracks the Market Vectors Egypt Index, which is comprised
of companies that are domiciled in Egypt or generate at least 50%
of their revenues in Egypt. The fund has $42 million in AUM,
invested in 28 securities (mostly mid-cap and small-cap).
Financials enjoy the heaviest weighting in the fund (43%),
followed by Telecom (18%) and Materials (12%). Expense ratio is
contractually capped at 0.94% through May 2013 and may go up to
iShares MSCI Turkey Investable Market Index (
) - Up 31.3% YTD
Like Egypt, Turkey ETF also had a miserable performance last
year (negative 36.3% return) but saw solid investor interest
this year, as the economy showed remarkable resilience to the
events in the euro-zone.
The economy grew at an impressive 8.5% in 2011 but is expected
to slow down to 2.3% in 2012 and then rise slightly to 3.2% in
2013, per IMF.
Despite solid growth potential, the economy faces some serious
challenges from its growing current account deficit (~10% of GDP),
rising inflation and low savings rate.
The deficit is mainly being financed by short-term capital flows
(hot money- which can change direction quickly). Further, energy
imports account for about half of its current account deficit,
leaving the country vulnerable to increase in oil prices.
Last month S&P revised the outlook on the country to stable
from positive due to concern that "less buoyant external demand and
worsening terms of trade could inhibit Turkey's economic
rebalancing". The agency maintained its sovereign rating at BB,
which is two notches below investment grade.
Going forward, the country will remain vulnerable to adverse
developments in the investor sentiment.
TUR tracks the MSCI Turkey Market Index, which is a
capitalization weighted index that aims to capture 99% of the
Turkey equity market. The fund was launched in March 2008 and
has attracted $421 million in AUM so far.
The fund charges 0.59% annually for expenses. In terms of sector
exposure, financials constitute almost half (47%) of the assets,
followed by consumer staples (14%) and industrials (11%).
iShares MSCI Philippines Investable Market Index
Up 31.2% YTD
Philippine economy grew at an impressive 6.4% during the recent
quarter, much better than expectations.
Last month, Moody's raised its credit rating on Philippines by
one notch to Ba2, which is just two ratings below investment grade.
S&P had raised its rating on Philippine credit to BB from BB-
While an improving fiscal situation, low inflation rate,
comfortable foreign exchange reserves position and a stable
currency have been factors in driving the growth, the country faces
some significant obstacles like poor infrastructure and
Thanks to its large educated young population that can speak
English, Philippines has been growing in popularity as a BPO
destination and has emerged as a tough competitor to India.
Rising consumer demand due to growing incomes of the middle
class continues to boost the domestic economy.
Long-term fundamentals for the economy look good in view of the
stable political situation and the popular government that seems
committed to accelerate the pace of reforms in the country.
EPHE follows the MSCI Philippines Investable Market Index, which
is float-adjusted market capitalization-weighted index designed to
measure the performance of the Philippine equity markets. The
fund has $148 million in AUM and holds 41 securities.
Expense ratio at 0.59% is among the lowest in the peer group.
Financials comprise more than 38% of the fund while Industrials and
Utilities comprise 25% and 13% respectively.
The ETF had a slight negative return of 3.28% in 2011.
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Market Vectors Vietnam ETF (
) - Up 24.5% YTD
Like the top two, Vietnam ETF also had an extremely dismal
performance in 2011, when it sank by almost 47%, as the
investors were concerned about the future prospects for the
economy. However as the economic situation improved, the investors
have poured money into the fund.
2011 was a bad year for the economy as the growth slowed,
inflation spiked (touched 23% in August last year), and trade
deficit worsened. As a result, the government introduced some
critical reforms aimed at restraining credit growth, controlling
inflation and restructuring state-owned enterprises and the
The economy seems to have turned the corner and the inflation
now seems to be coming under control as it reached a 21- month low
of 8.34% in May. The IMF projects that the economy will slow down
to 5.6% in 2012 from 5.9% in 2011 but rebound in 2013 to 6.3%.
VNM tracks the Market Vectors Vietnam Index, which provides
exposure to the publicly listed companies that are domiciled and
listed in Vietnam or derive at least 50% of their revenues from
The ETF currently holds $299 million in AUM and charges 76 basis
points to the investors annually for expenses. The expenses are
contractually capped at the current level through May 2013 and may
go up to 92 basis points after that date.
In terms of sector allocation, financials occupy the top spot
with almost 50% weight. Energy (22%) and industrials (11%) hold the
Market Vectors India Small Cap Index ETF (
) - Up 21.9% YTD
India's pace of growth is slowest in about a decade mainly due
to rising inflation, widening fiscal and current account deficit
and a weakening currency. Rating agencies have downgraded the
outlook on the country's credit of late and warned that it may be
downgraded to junk status.
Prime Minister Singh, who was the chief architect of major
market reforms introduced in early 1990s, has taken over the role
of finance minster again. It remains to be seen whether he will be
able to end the current state of policy paralysis in India. (Read:
Top Three Emerging Market Dividend ETFs For Income
Recent manufacturing data ignited some hopes as manufacturing
was at its highest levels in four months.
The currency which had plunged to all-time low a couple weeks
back has also since recovered after recent measures taken by the
government to ease restrictions on foreign investments and some
reports that that the government may abolish the withholding
tax on foreign institutions' investment in government bonds.
While India ETFs had started the year on a solid note, the
sentiment reversed later. However the ETF focusing on small-cap
stocks in the country is still one of the best performers in the
first half of the year.
Going forward, the ETF may continue its performance only if the
government treats the recent adverse events as a wake-up call.
SCIF tracks the India Small Cap Index which is a free-float
market cap weighted benchmark representative of the small cap
market in India. The product currently holds 108 securities and
charges investors 85 basis points a year in fees (capped through
Consumer Discretionary and Financials sector takes the top spot
with 21% each of total assets followed by Industrials (18%).
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MKT VEC-EGYPT (EGPT): ETF Research Reports
ISHARS-MS PH IM (EPHE): ETF Research Reports
MKT VEC-INDI SC (SCIF): ETF Research Reports
ISHRS-MSCI TURK (TUR): ETF Research Reports
MKT VEC-VIETNAM (VNM): ETF Research Reports
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