Another market sell-off on Monday meant another sea of red for
ETFs tracking both developed and emerging economies. With yields
on Italian and Spanish two-year sovereigns soaring, and rumors
going around that Spanish banks will be downgraded by Moody's
Investors Service, the waters are becoming harder to navigate for
emerging market ETFs.
In fact, the only green spots that can be found among emerging
market ETFs after Monday's drubbing are with inverse funds such
as the ProShares UltraShort Brazil (NYSE:
BZQ
) and the ProShares UltraShort FTSE China 25 (NYSE:
FXP
).
That is a testament to the vulnerability of select emerging
market ETFs. The upside in funds such as BZQ and FXP may be far
from over as plenty of traditional long emerging markets funds
look all but certain to retest their 52-week lows in the
near-term. The following funds standout and not for good
reasons:
iShares MSCI Brazil Index Fund (NYSE:
EWZ
)
The struggles of Brazil ETFs, including EWZ, the largest and most
heavily traded of the bunch,
have been well-documented
.
One of the biggest knocks on EWZ has been the ETF's heavy
allocation to Brazil's state-run oil company, Petrobras (NYSE:
PBR
). EWZ's current weight to that stock is almost 17%. Petrobras,
which has long been the worst-performing major oil stock listed
in the U.S., slid 9 percent on Monday on volume that was better
than double the daily average.
EWZ, which saw unusually high turnover as well, touched
$49.05, a new 52-week low today. The close below $50 is
significant because the last couple of times EWZ dipped below
there, buyers stepped in. Things look ominously different this
time and that could be a harbinger of more downside to come. The
last time EWZ spent a significant amount of time below $50 was
during the darkest days of the financial crisis.
iShares MSCI Taiwan Index Fund (NYSE:
EWT
)
EWT's woes should not come as a surprise to anyone. Not only is
this ETF treated as a China play, it has been
showing overt signs of being a laggard for
months
. That laggard status looks like it is about to catch up with
EWT. The fund closed at $11.72 Monday, just 53 cents above its
52-week low.
A move below $11 could be psychologically fatal for EWT bulls,
if there are any left. The ETF hasn't traded below that area in
more than three years.
SPDR S&P BRIC 40 ETF (NYSE:
BIK
)
If the SPDR S&P BRIC 40 ETF does one thing right, it is
offering just a 4.4 percent weight to India, perhaps the most
problematic of the BRIC quartet. If the ETF does something wrong
it is allowing financials and energy names to command almost
two-thirds of the total sector weight.
Eight of BIK's top-10 holdings are bank or oil stocks and
Petrobras is included among that fray. BIK is about 6 percent
above its 52-week low, but it could take just a couple of bad
days for that 6 percent decline to materialize. Even a move below
$20 would be cause for concern because BIK has not traded below
there since October 2011.
Market Vectors LatAm Small-Cap Index ETF (NYSE:
LATM
)
The Market Vectors LatAm Small-Cap Index ETF appears to have
found support at $21. Problem is if $21 is violated, LATM's
ticket to $20.40, the 52-week low, is punched. LATM is
interesting in that more than 29 percent of its weight goes to
Canadian and U.S. companies with Latin American exposure and it
is also worth noting the ETF's exposure to Peru is arguably too
small at just 0.8 percent.
LATM has no Colombia exposure and that is another strike
against the fund. The biggest reason to steer clear of LATM in
this environment is not because it is a small-cap ETF. It is
because 38.3 percent of the fund's country weight goes to
Brazil.
For more on emerging markets ETFs, click
here
.
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advice. All rights reserved.