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Emerging Market ETFs Surge on Solid China Data - ETF News And Commentary
After growth slowdown, capital flight and choppy trading in
the past few months, the trend has finally started to reverse for
emerging markets. Many emerging market stocks have rebounded from
their recent lows and are moving higher.
The slew of positive news, particularly the latest Chinese data has spurred investors' confidence in these markets (read: India ETFs Rebound on Central Bank Steps ).
Signs of Hope?
Investors are turning bullish on emerging markets thanks to strong trade data for August from China.
Exports rose more than expected to 7.2% in August when compared to the year-ago time frame, boosted by strong demand from the U.S. and other major export markets. This is up from the 5.1% increase in July and 3.1% decline in June. Meanwhile, imports lagged expectation with a gain of 7% but were down from 10.9% in July. This led to widening of trade surplus to $28.6 billion from $17.82 billion in June.
Further, inflation in China came in at 2.6% for August, in-line with the market expectation and just a percentage point above the July level. The inflation has remained below the government target for eight consecutive months (read: 3 Emerging Market ETFs Still Up in 2013 ).
These numbers are especially encouraging as they suggest that the slowdown in China seen in nine of the past 10 quarters might finally be over.
Apart from China, the worst hit economies - India, Indonesia and Brazil - are lately showing some signs of hope, driving emerging markets higher. According to the data released by HSBC and Markit Economics , emerging markets manufacturing activity rose slightly in August, marking the first rise since March.
The upbeat Chinese data unsurprisingly led to bullish trading conditions in the emerging markets ETFs pushing major funds higher. The two ultra-popular funds targeting broad emerging nations - VWO and EEM - were up nearly 3% yesterday compared to gains of roughly 1% for the broad U.S. market ( SPY ) and about 1.37% for the total world ( VT ).
Someother ETFs tracking emerging markets, saw more strength than the two popular funds and led the way higher. Below, we highlight three such ETFs that have enjoyed huge rally from this trend, and could be worth consideration, if China continues to rebound (see: all the Emerging Markets ETFs here ):
MSCI Emerging Markets Consumer Discretionary Sector ETF ( EMDI )
This fund provides exposure to the consumer discretionary sector of broad emerging markets by tracking the MSCI Emerging Markets Consumer Discretionary Index. The fund has been able to gather only $2.6 million in AUM so far and average daily volume is also light with just 4,000 shares. Further, the ETF is a bit expensive, charging 68 bps in fees per year.
With holdings of 91 securities, the product is somewhat concentrated on its top 10 holdings with nearly 49% of total assets. The fund is heavily exposed to South Korean firms making up for 33.48% share followed by South Africa (18.13%). Other countries such as China, Brazil, Taiwan, Mexico, Malaysia, India, Indonesia and Hong Kong make up a nice mix in the fund's portfolio.
The ETF added about 5.11% after the China data came out, though the product was down about 2.72% in the year-to-date time frame. The product has a Zacks Rank of 3 or' Hold' rating.
EGShares Emerging Markets Dividend Growth ETF ( EMDG )
This is the new fund in the emerging market space targeting high income paying securities by tracking the FTSE Equal Weighted Emerging All Cap ex Taiwan Diversified Dividend Yield 50 Index (read: EGShares Launches New Emerging Market Dividend ETF ).
In total, the product holds 50 securities in its portfolio, spread across a variety of sectors. Financial and energy take the top two spots at nearly 20% and 17%, closely followed by consumer goods (14.6%) and industrials (13.5%). From a national perspective, China (19.5%), South Africa (17%), Brazil (15.8%), and Indonesia (10.9%) take the top four spots.
The ETF has accumulated $2 million since its inception two months back and charges 85 bps in fees per year. Volume is also light. EMDG surged 4.50% on the day but lost 0.4% so far in the year.
First Trust Emerging Markets AlphaDEX Fund ( FEM )
This fund provides a slightly active choice in the emerging market space as it uses AlphaDEX methodology to select the stock. The methodology seeks to narrow the developing nation space to only the best positioned companies. It ranks the stocks by various growth and value factors, eliminating the bottom ranked 25% of the stocks.
This approach produces a basket of 149 stocks, which is widely spread across each sector and security. Chinese firms dominate the portfolio with 31.22% share while Brazil, Thailand, Turkey, Poland and others get single-digit allocations (see more in the Zacks ETF Center ).
The fund has amassed $154.3 million in its asset base while it trades in good volume of nearly 160,000 shares per day. The ETF charges 0.80% in expense ratio. FEM gained 3.6% on the day but is down 6.83% year-to-date.
Emerging markets ETFs have faced tough times this year,as concerns over widening current account deficits, sluggish currencies, rising inflation and political disorder hits the shares in these nations (read: 3 Currency ETFs Crushed in Emerging Market Rout ).
However, recent Chinese data and some positive news from across the emerging economies have been encouraging, suggesting that the worst might be over. This could help emerging stocks and the related ETFs to move higher at least in the near term.
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ISHARS-EMG MKT (EEM): ETF Research Reports
EGS-EM DIV (EMDG): ETF Research Reports
ISHARS-M EM CDS (EMDI): ETF Research Reports
FT-EMG MKT AD (FEM): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
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