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Best Global ETF Buys For Q4 2012 From The Pros

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Egypt, Turkey and the Philippines ETFs have outperformed all global markets this year, rallying 30% to 66% year to date. Where should ETF investors travel in the fourth quarter? ETF investment advisers share their top destinations for Q4.

• Michael Gayed, chief investment strategist at Pension Partners in New York with $150 million in assets:

2012 has been a fascinating year from the psychological standpoint. The negative sentiment over Europe has been so powerful that fears of a repeat of 2008 forced money into "safe" investments, punishing growth (stocks) in ways not seen since the Lehman bankruptcy.

The problem of course is that a Lehman-like event has not happened, causing a massive disconnect between price and the current environment.

The area most hit because of Europe has ironically not been Europe, but rather emerging markets, which export to Europe. This has resulted in a major opportunity, given that 1) it is clear that although Europe is in a recession it will still exist, and 2) many emerging economies have aggressively lowered their own interest rates in response to the global slowdown.

The European Central Bank has made it clear that the risk of a financial collapse will be mitigated by money printing. Furthermore, because interest rate cuts tend to act with a lag on the economy, the easing cycle may just be about to have an impact on those emerging markets, which have been cutting their own respective interest rates in the last year or so.

With the U.S. market having outperformed this year, it would make sense for emerging market stocks to now play catch up.

The move likely gets driven by hedge fund money, which has badly underperformed the S&P 500 this year. The only way to catch up to the S&P 500 is by going into those areas that are down the most relative to the S&P 500 on a "reversion-to-the-mean" trade.

Leveraged buying into beaten-down investments by hedge funds could result in a period of outperformance for China, Brazil, Russia, and India in the fourth quarter.

Broad-based emerging market ETFs, such asSchwab Emerging Markets Equity ( SCHE ), are a great way of playing the comeback theme.

• Leila Heckman, managing director of The Roosevelt Investment Group in New York with $5 billion in AUM:

Given the low interest-rate environment worldwide, we feel that "risky" assets are attractive. Global equity valuations as measured by forecast 2012 price-to-earnings ratios are at historically low levels and dividend yields in the U.S. as well as foreign markets are above U.S. 10-year Treasury yields.

Global earnings growth remains positive, despite downward revisions. To decide which equity markets to emphasize, we look at such things as valuation, growth, risk and price momentum. We like cheap markets where sovereign (debt) yields have not widened out over the last several years.

We also like equity markets where forecast GDP growth is being revised upward, not downward. Markets where GDP forecasts are going up are hard to find in our slow-growth world environment. We also like markets in which export prices are rising relative to imports.

As of September, the following ETFs look attractive when we combine all the things that we consider. We've overweighted them for the fourth quarter:iShares MSCI Germany Index ( EWG ),iShares MSCI France Index ( EWQ ),iShares MSCI Norway (ENOR),iShares MSCI Poland ( EPOL ),iShares MSCI Russia ( ERUS ),iShares MSCI Turkey (TUR) andiShares MSCI Thailand (THD).

• Keith Newcomb, portfolio manager at Full Life Financial in Nashville:

Emerging Asia is benefiting from attractive monetary policy, higher economic growth rates, some of the lowest valuations in the world and improving risk appetite.

IShares MSCI Hong Kong Index (EWH) is in a potential new uptrend following a breakout and has reasonable valuations.

SPDR S&P Emerging Asia Pacific ETF (GMF) represents the leading undervalued emerging markets: China, Taiwan, India, Malaysia, the Philippines, Thailand and Indonesia. Its P-E of 12 is a discount of 20% to the S&P 500. It appears to be in the process of breaking out of a multimonth consolidation pattern. For a deeper value,SPDR S&P China ETF (GXC) is trading at a P-E of 9, a 38% discount to the S&P 500.

China is the world's second-largest and fastest-growing major economy, yet its stock markets have made little to no progress for the last two years or more, with some sectors down by double digits.

There are many rational reasons to avoid investing in developing Asia: 1. China and Europe's slowdown could drag on for several more years; 2. territorial disputes; and 3. misallocation of capital resulting in overcapacity and excess inventories.

Officials are well aware of the issues and are taking steps to fix these problems. Chinese leaders are traveling the globe, building friendships to pave the way for Chinese investment on every continent. When commodity prices collapsed in 2008, China swooped in and secured resource deals in Africa and elsewhere in the southern hemisphere.

Today, with many European businesses struggling, China has quietly made hundreds of strategic acquisitions and investments that bring the nation not only important technology and brands but also international sales organizations and people with management and technical expertise. These shrewd moves are positioning Chinese industry for a more prominent role in global business. • Charles Sizemore, principal of Sizemore Capital Management in Dallas with $10 million AUM:

Investors and entrepreneurs are shifting their attention to the next big growth market: Africa. In a year in which growth forecasts have been slashed across the globe, Africa has been surprisingly resilient. The International Monetary Fund forecasts that Africa's growth rate will be 5.4% this year and 5.3% in 2013. For a continent best known for its chronic civil wars and HIV epidemic, that's not half bad.

The African continent has a population of over a billion people, making it bigger than the U.S. and European Union combined. The World Bank estimates that 47% of Sub-Saharan Africans live on less than $1.25 per day. Living standards are higher in North Africa, though it's no stranger to poverty either.

India, which has been a favorite emerging market for years, has nearly comparable levels of poverty. China had similar levels of poverty a few decades ago.

Market Vectors Africa Index ETF (AFK) covers the entire continent. AFK has more than 40% of its assets in financials, which is a little higher than what I would ideally like to see. But it also has a healthy allocation to consumer companies such as Nigerian Breweries or Maroc Telecom.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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