Emerging markets equities and plenty of the corresponding
have had quite the run. Even with today's slide of 0.75 percent,
the iShares MSCI Emerging Markets Index Fund (NYSE:
) is up 16 percent over the past six months. The SPDR S&P 500
) has returned 9.6 percent over the same time.
Predictably, the recent bullishness in emerging markets stocks
has left some market participants wondering if there is more gas in
the tank for this asset class or if it is now too late to get
involved. iShares Global Chief Investment Strategist Russ
Koesterich still sees value in the developing world. Evidence of
superior growth is again mounting and that is just one reason to
consider emerging markets, in Koesterich's view.
"The growth outlook for emerging markets has improved in recent
months," said Koesterich in a blog post. "While China and other
large emerging market countries are highly unlikely to achieve
double-digit growth anytime soon, or ever, their growth should be
higher in 2013."
Not surprisingly, China has been a driving force behind the
recent surge in emerging markets stocks and ETFs. For much of 2012,
investors fretted that the world's second-largest economy would be
unable to avoid an economic hard landing and that the market was
having a hard time coming to grips with China's new normal, which
includes GDP growth rates unlikely to see 10 percent or anytime
Those concerns have been eradicated in recent months as Chinese
economic data, including PMI and export numbers, have consistently
improved. Along the way, the iShares FTSE China 25 Index Fund
), the largest China ETF by assets, has surged 15 percent.
China ETFs such as the
iShares MSCI China Index Fund (NYSE:
), the SPDR S&P China ETF (NYSE:
) and the Guggenheim China Small-Cap ETF (NYSE:
) have participated in the rally as well.
Even after the stellar performances turned in by developing
markets stocks over the past few months, the group remains
inexpensive on a valuation basis, notes Koesterich.
"Based on price-to-earnings ratios, developed markets are
trading at a 50% premium to emerging markets, the largest such
premium since late 2009,"
according to the strategist
. "And historically, premiums this large have generally been
associated with emerging market outperformance over the next twelve
One of the markets Koesterich identifies as attractively valued
is one that has
been wearing that label for quite a while now:
. In 2012, the iShares MSCI Brazil Index Fund (NYSE:
), the largest ETF tracking Latin America's largest economy,
languished and was the worst performer among the four major ETFs
devoted to the BRIC nations.
There is no other way of saying it than that
EWZ was one of the most disappointing emerging
markets ETFs of 2012
. Slowing growth and an often unfavorable business climate for
Western companies are strikes against Brazil.
However, EWZ has surged 7.4 percent over the past month and
Koesterich sees opportunity.
"Of all the large emerging markets Brazil is one of the
cheapest, with the market trading at less than 10x forward earnings
and barely 1x book value," said Koesterich. "Valuations at this
level look particularly attractive given the country's current
inflation rate of 5.5%, a moderate rate for Brazil. Assuming
Brazil's inflation remains at current levels and the country's
growth picks up this year as I expect, valuations have significant
room to expand. I also believe that Brazilian equities' recent
sluggishness is a sign that investors haven't given the market
proper credit for recent structural reforms."
Koesterich highlighted Brazil, China and Russia as options "for
investors seeking a less volatile strategy." The one ETF directly
mentioned in his post was the highly popular iShares MSCI Emerging
Markets Minimum Volatility Index Fund (NYSE:
). EEMV has attracted more than $889 million in assets in less than
16 months of trading and has returned 18.4 percent over the past
For more on emerging markets ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment advice.
All rights reserved.
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