Emerging markets equities and the marquee U.S.-listed
ETFs
tracking these stocks have been hammered in recent weeks. If the
iShares MSCI Emerging Markets Index Fund (NYSE:
EEM
) cannot eke out a gain today, the ETF will have closed lower for
seven consecutive days. Sine the start of November, EEM has slid
2.1 percent.
Overall, 2012 has been a year of mixed results for emerging
markets investors. Due to an array of problems such as inflation,
slowing growth and currency issues,
the BRIC quartet has been disappointing
.
The average year-to-date return offered by the iShares FTSE
China 25 Index Fund (NYSE:
FXI
), the iShares MSCI Brazil Index Fund (NYSE:
EWZ
), the Market Vectors Russia ETF (NYSE:
RSX
) and the WisdomTree India Earnings ETF (NYSE:
EPI
), the four major ETFs tracking the BRIC nations, is just 1.33
percent.
What that says is that the largest emerging markets have been
duds. The news is not all bad. As Dorsey Wright & Associates
notes,
investors are becoming more apt to
differentiate
among various developing nations. Said differently, savvy
investors know there is much more to the emerging market game
than the BRIC quartet and South Korea.
Should this asset class rebound before the end of the year,
investors would do well to consider the following ETFs tracking
smaller emerging markets.
PowerShares DWA Emerging Markets Technical Leaders
Portfolio (NYSE:
PIE
)
Over the past month, PIE's allocations to smaller emerging
markets such as Malaysia and Thailand have helped the ETF prove
more durable than a fund such as EEM. Investors can see what a
difference larger allocations
to the top-performing emerging markets makes when comparing PIE
and EEM.
PIE is off 1.6 percent in the past month while EEM is down
four percent. Yes, South Korea and Taiwan, two of the most usual
emerging markets suspects, combine for 20.5 percent of PIE's
weight. However, Indonesia, Malaysia, Thailand, Mexico and the
Philippines combine for nearly half of PIE's weight making the
ETF one of the better multi-country options for gaining exposure
to the best growth stories in the emerging world.
iShares MSCI Philippines Investable Market Index Fund
(NYSE:
EPHE
)
This is what happens: As certain emerging markets show improving
equity markets, those markets gain more backers. Ruchir Sharma,
head of emerging markets at Morgan Stanley's asset management,
spoke favorably of the Philippines in
a recent interview with the Financial Times
.
To be sure, the Philippine investment thesis has progressively
gained backers in the West throughout this year. Followers of
this space
know EPHE was endorsed in January
.
The Philippines does not even account for one percent of EEM's
weight and that should not matter to investors. What is important
are the facts EPHE has proven durable relative to the broader
emerging universe during market pullbacks and that the ETF has
been a relative strength lead for the bulk of 2012.
Market Vectors Indonesia Index ETF (NYSE:
IDX
)
Although Indonesia is the fourth-largest country in the world by
population and the largest economy in Southeast Asia, it accounts
for a scant percentage of the MSCI Emerging Markets Index. Try
less than three percent.
IDX is an interesting case. As has been noted, some country
ETFs
have recently been outpacing
the major bourses in their home nations. Indonesian stocks
recently hit record highs, but a weakening currency dampened
those returns in U.S. dollar terms, the FT reported.
In part, that explains why IDX is nowhere near its all-time
high. To the fund's credit, it has been quite durable amid the
recent calamity that has afflicted so many emerging markets
ETFs.
iShares MSCI Turkey Investable Market Index Fund (NYSE:
TUR
)
In the FT interview, Sharma also mentioned Turkey as one of his
top picks in the emerging world. That is a good call, because
like the Philippines and EPHE, Turkish equities and TUR have
actually notched small gains in the past month. And like EPHE,
TUR
has had supporters dating back to much earlier
this year
.
Fitch Ratings recently
moved Turkey's credit rating to investment-grade
territory
.
"Turkey's sound banking system underpins the rating. It has a
capital adequacy ratio of 16.3%, is moderate in size and has a
low non-performing loan ratio of 2.8%. However, credit growth has
been brisk in recent years (although it slowed to 14% in
September 2012), raising the loan/deposit ratio to above 100%.
Household debt is low at only 18% of GDP," Fitch said at the
time.
Similar action by either Moody's Investors Service or Standard
& Poor's would be significant because it would allow Turkish
bonds to be included in benchmark fixed income indexes. The
medium- to long-term bull case for Turkey is strong and an other
credit rating upgrade would serve to fan the flames of a rally in
TUR.
For more on emerging markets ETFs, click
here
.
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advice. All rights reserved.