After being trapped in a web of difficulties over the past five
years, emerging market stocks have had a torrid run over the past
two months. In fact, the MSCI Emerging Markets Index is up 6.6% in
the year-to-date timeframe and is easily outpacing the gains of
1.8% for the S&P 500 and 0.5% for the MSCI World Index.
Inside The Surge
Most of the gains were driven by stabilization in the Chinese
economy, a rebound in commodity prices and the latest wave of
interest cuts by emerging-market countries like India, Indonesia,
Turkey, Hungary and Taiwan. Notably, Hungry stocks have been the
major outperformers following the rate cuts and are hovering around
their 9-year highs (read:
Hungary Too in the Rate-Cut Club: ETFs in Focus
The market is expecting more nations to join the interest rate cut
league, which would drive the emerging market stocks higher in the
coming months. Nigeria and South Africa are expected to cut rates
to control their high inflation while Brazil, roiled by inflation
and political turmoil, may also follow suit. Moreover, some
analysts expect Russia to start easing policies soon despite the
fact that inflation has dropped to the lowest level in two years.
Additionally, the cautious stance by the Fed for future rate hikes
has injected fresh optimism into the emerging markets. The Fed
signaled that interest rates in the U.S. would stay low for some
time and has dialed back its projection from four lift-offs to two
hikes. This is weighing on the dollar, pulling in more capital into
the emerging markets. In fact, the US Dollar Index has weakened
nearly 4% so far this year.
Further, as per the data from the Institute of International
Finance, capital inflows to emerging markets surged to a 21-month
high of $36.8 billion in March, reflecting solid investor
confidence in these nations. Latin America gathered the most
capital of $13.4 billion, followed by inflows of over $2 billion in
Brazil. Investors have been flocking to Brazilian stocks due to
attractive valuations and hopes of political change. As a result,
the Brazil stocks have popped up 23% so far this year (read:
Why Brazil ETFs are Gaining despite Economic and
Added to the stronger case is that emerging market stocks
than the U.S. stocks at the current levels. This is especially true
as MSCI Emerging Markets Index is trading at a P/E ratio of 11.6
versus 17.5 for the S&P 500.
Given this, while many emerging market ETFs have performed
remarkably well, we highlight five funds that are leading the space
from a year-to-date look and are expected to continue their
outperformance provided the fundamentals remain intact.
iShares MSCI All Peru Capped ETF (
) - Up 42.0%
This product targets the Peruvian stock market by tracking the MSCI
All Peru Capped Index. In total, it holds 26 stocks with
concentrated exposure on the top two firms - Credicorp and Southern
Copper - with a combined 39.4% share. Other firms do not hold more
than 5.70% of assets. About half of the portfolio is dominated by
materials, followed by financials at 27.3%. The product has amassed
$197.2 million in AUM while trades in average daily volume of
146,000 shares. It charges 64 bps in annual fees and expenses and
has a Zacks ETF Rank of 3 or 'Hold' rating with a Medium risk
Peru ETF Shining on Gold Rally
iShares MSCI Brazil Capped ETF (
) - Up 38.3%
This fund targets the Brazilian stock market and follows the MSCI
Brazil 25/50 Index. Holding 61 stocks in the basket, it is guilty
of concentration across the top three firms with over 8% share each
while others hold less than 4% of assets. In terms of industrial
exposure, financials dominates the fund's return at 36.4%, followed
by consumer staples (18.6%), energy (10.9%) and materials (10.0%).
The fund has AUM of $3.1 billion and average daily volume of 20.8
million shares while it charges 64 bps in fees per year from
investors. It has a Zacks ETF Rank of 3 with a High risk outlook.
iShares MSCI Turkey ETF (
) - Up 23.8%
This product provides a pure play exposure to 69 Turkish stocks by
tracking the MSCI Turkey Investable Market Index. It is highly
concentrated on the top three firms with a combined 27.4% of assets
while other firms hold no more than 5.53% share in the basket. Here
again, financials is the top sector at 42.6% of the portfolio while
industrials and consumer staples take double-digit exposure each.
The fund has amassed around $390 million in its asset base and
trades in solid volume of more than 338,000 shares per day in
average. The fund charges 64 bps in annual fees from investors and
has a Zacks ETF Rank of 3 with a High risk outlook.
Market Vectors Russia Small-Cap ETF (
) - Up 23.3%
This fund targets the small cap segment of the Russian equity
market by tracking the Market Vectors Russia Small-Cap Index.
Holding 27 stocks in its basket, the product is largely
concentrated on the top 10 holdings at 61%. Utilities and materials
are the top sectors with 29.5% and 21.9% share, respectively,
followed by financials (16.9%) and industrials (13.2%). RSXJ is
unpopular and less liquid having AUM of $43.5 million and average
daily volume of 27,000 shares. It charges 68 bps in annual fees and
has a Zacks ETF Rank of 4 or 'Sell' rating with a High risk outlook
all the Broad Emerging Market ETFs here
Global X MSCI Colombia ETF (
) - Up 23.2%
With AUM of $86.4 million and average daily volume of $149,000
shares, GXG offers exposure to the Colombian stock market tracking
the MSCI All Colombia Capped Index. It holds 29 securities in its
basket with the largest allocation going to the top two firms at
15.1% and 8.1%, respectively. Other firms hold less than 5.6% of
assets. Financials takes the top spot at 37% while utilities,
materials and energy round off the next three spots with
double-digit exposure each. Expense ratio came in at 0.61%. The
fund has a Zacks ETF Rank of 3 with a Medium risk outlook.
As the deal to freeze oil output at January levels collapsed in the
oil exporters meeting held on Sunday, oil price tumbled with Brent
losing as much as 6% and U.S. crude sliding nearly 5% in early
trading on Monday. If oil continues its slide for long, it could
again be a matter of concern for the emerging markets, as it will
yet again lead to a decline in the commodities on which these
markets depend for growth.
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ISHARS-MSCI PER (EPU): ETF Research Reports
ISHARS-BRAZIL (EWZ): ETF Research Reports
ISHRS-MSCI TURK (TUR): ETF Research Reports
MKT-VEC RUS SC (RSXJ): ETF Research Reports
GLBL-X/F COL 20 (GXG): ETF Research Reports
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