Despite some decent economic news out of Chin over the
weekend, emerging markets ETFs are basically a mixed bag on
Monday. Funds tracking China, such as the iShares FTSE China 25
Index Fund (NYSE:
FXI
), or those with significant exposure to the world's
second-largest economy such as the iShares MSCI Taiwan Index Fund
(NYSE:
EWT
), are trading slightly higher.
On the other hand, Latin America ETFs and Russia funds are
mostly trading lower, though the losses are tolerable. The real
sea of red can be spotted with downtrodden India ETFs as some old
news is being treated as new, roiling investors with exposure to
Asia's third-largest economy.
Overnight, India's benchmark Sensitive Index and the already
embattled rupee plunged after rating agency Standard & Poor's
said the "I" in the BRICS acronym is in danger of losing its
investment grade credit rating.
This isn't a surprise because
in April, S&P pared its outlook on India's
BBB- rating to negative from stable
. Citing deteriorating economic fundamentals, S&P reiterated
the view that India is in danger of losing its investment grade
status. At BBB-, India has the lowest investment grade rating
possible.
Said differently, S&P has a higher rating on Spain than it
does on India, at least for the moment. Shares of the WisdomTree
India Earnings ETF (NYSE:
EPI
), the largest India ETF by assets, are lower by 2.6%. The
PowerShares India Portfolio (NYSE:
PIN
) is off 2.2% while the Market Vectors India Small-Cap ETF (NYSE:
SCIF
) is down 2.4%. SCIF is now within spitting distance of its
52-week low and has spent much of the past several weeks trading
below $10 after being one of the best-performing ETFs in the
first quarter.
As Benzinga noted in April, even at BBB- with a negative
outlook, India is in some dubious company. That same
rating/outlook combination is held by Barbados and Tunisia making
India the lowest-rated of the BRICS by S&P.
The fall from economic grace has been rapid for India. Amid
rising deficits, slowing GDP growth (Indian GDP growth was just
5.3% last year, the worst increase in nine years) and concerns
that the Indian government is turning a blind eye to the
country's economic woes, major India ETFs have been slammed. In
the past 90 days, EPI has lost almost 20% while PIN has dropped
18.4%. By comparison, the iShares S&P India Nifty 50 Index
Fund (Nasdaq:
INDY
) looks good over the same time frame with a loss of
"just"16.4%.
The road ahead for India and its corresponding ETFs doesn't
get any easier as headline risk is imminent. Industrial
production data is due out this week. More importantly, so is
inflation data. Inflation is a four-letter word in India as none
of the other BRICS constituents have been hammered by inflation
over the past 12-18 months the way India has been. India's
current account and fiscal deficits surged in its most recently
completed fiscal year and a spate of interest rate hikes by the
Reserve Bank of India last year proved largely ineffective in
damping inflation.
In the near term, India risks being the answer to three
ominous trivia questions: Who was the first BRICS to lose its
investment grade status? What BRICS member has the lowest credit
rating? (That risk has passed as the answer is already India.)
And what country did Indonesia replace as a member of BRICS?
As for the question what's the best way to play India via ETFs
these days, the answer is very likely the Direxion Daily India
Bear 3X Shares (NYSE:
INDZ
).
For more on India ETFs, please click
HERE
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.