Markets

Emerging Markets in Europe, Middle East and Africa: Hungary, Russia, UAE and 7 Other Nations

The ‘emerging markets’ or ‘developing economies’ are present in different pockets of the world and are primarily clubbed under three groups – Asia, Latin America, and finally, Europe, Middle East and Africa. The third category representing Europe, Middle East and Africa is the most diverse and is also the home to some of the best performing stock markets in recent years. The MSCI Emerging Markets EMEA Index is one of the best representations of the cumulative performance of the ten constituent countries. Let’s look at these ten nations more closely, their economic growth, stock market performance and investment avenues.

Hungary

Budapest, Hungary.

Budapest, Hungary.

Hungary a landlocked country in central Europe is primarily a service sector economy supported by its industrial sector. The economy was a victim of the 2008 financial crisis and obtained financial assistance of over $25 billion from the World Bank and IMF as it was unable to service its short-term debt. The economic growth plummeted by 6.6% in 2009 while 2010 and 2011 witnessed slight recovery with its GDP growing at 0.8% and 1.8%. The economy dipped yet again in 2012 by 1.5% emerging by the same percentage in 2013. The economy made a comeback with 3.6% growth in 2014 and is expected to grow around 2.9% in 2015.

Hungary is among the top performing stock markets in 2015 with the BUX Index up by 31.36% year-to-date. Investors do not have too many options to access these markets as they are no pure Hungary dedicated exchange traded funds or NYSE and Nasdaq-traded ADRs. However, few stocks like MOL Hungarian Oil & Gas Plc(MGYOY) and Magyar Telekom (MYTAY) are traded in the U.S. over-the-counter. The SPDR S&P Emerging Europe ETF (GUR) provides a small exposure of 3% to the Hungarian stock markets.

United Arab Emirates

Dubai, United Arab Emirates.

Dubai, United Arab Emirates.

United Arab Emirates (UAE) is a high income economy with a GDP of $401.6 billion. The country is among the largest oil producers and is known for its political stability and free-market economy. UAE has 97.80 billion barrels of proven crude oil reserves which accounts for 8.1% of the total OPEC share. Although UAE’s economic mainstay is oil, the policy has economic diversification has ensured that non-oil sectors do not remain dormant; the non-oil sectors contribute about two-third of the GDP.

The iShares MSCI UAE Capped ETF (UAE) is the only single country exposure exchange traded fund. However, there are few ETFs which provide a 20-30% exposure towards UAE. None of the country’s stocks are listed on NYSE/Nasdaq but some stocks trade over-the-counter in the U.S., they are Al Noor Hospitals Plc (ANHGY), Dragon Oil Plc (DRAGY) and NMC Health Plc (NMHLY). The FTSE DIFX UAE 10 Index delivered positive returns in the past three years; 32.41%, 86.66% and 11.16% in 2012, 2013 and 2014 each. The index is currently down by 6.23% year-to-date in 2015.

Turkey

Blue Mosque, Istanbul, Turkey.

Blue Mosque, Istanbul, Turkey.

Turkey is an ‘upper middle-income’ country with a GDP of $799.54 billion which makes it the seventeenth largest economy in the world. “In less than a decade, per capita income in the country has nearly tripled and now exceeds $10,500” according to the World Bank. The country has grown at an average annual rate of 4.31% since 2005. Although the Turkish economy is growing at a decent pace, the current political limbo may pose challenges ahead as the economic reforms and financial planning process is likely to get delayed.

The iShares MSCI Turkey ETF (TUR) is a single country ETF providing access to Turkish stocks. While just one Turkish company, the Turkcell Iletisim Hizmetleri (TKC) is traded as ADR on NYSE, many others are traded in the U.S. over-the-counter. The Borsa Istanbul 100 Index was up 26.43% in 2014 and is currently down by 6.95% year-to-date in 2015.

South Africa

Kruger National Park, South Africa.

Kruger National Park, South Africa.

South Africa joined the BRIC club in 2010, now known as BRICS. South Africa is categorized as an ‘upper middle income’ economy and has grown at an average annual rate of 3.01% during the last ten year period (2005-2014). The economy has slowly and steadily progressed amid a supportive global environment and macroeconomic prudence in the country. However, the $349.8 billion economy is challenged with the highest inequality rate in the world according to the World Bank. South Africa’s GDP is expected to rebound to 2% in 2015 (from 1.5% in 2014) on the back of export-led recovery and low oil prices.

The iShares MSCI South Africa ETF (EZA) provides an opportunity to invest in large and mid-sized companies in South Africa. Other than the ETF, investors have the option to invest in ADRs trading on recognized American exchanges; some of the companies are AngloGold Ashanti Limited (AU), DRDGOLD Limited (DRD), Gold Fields Limited (GFI), Harmony Gold Mining Company Limited (HMY) and MiX Telematics Limited (MIXT) among few other options. In addition to these, investors can explore the companies trading over-the-counter. The FTSE/JSE All-Share Index is up 6.48% year-to-date in 2015.

Czech Republic

Prague, Czech Republic.

Prague, Czech Republic.

The Czech Republic is a ‘high income OECD’ country regarded as a stable and prosperous market economy. The country is known for its auto industry which contributes to about one-fourth of its manufacturing. Although the country’s small and inward-looking financial system is healthy, its economy is exposed to vulnerabilities due to dependence on exports, particularly to Germany. The recession in Germany caused a huge dent to the country’s manufacturing during the 2008 crisis which resulted in a 4.8% fall in Czech Republic’s GDP in 2009. The economic growth dropped yet again in 2012 and 2013 throwing it into recession. Czech Republic grew at 2% in 2014.

There are no exchange traded funds purely targeting the Czech Republic, however, the country is constituent in some of the ETFs providing exposure to the region but its weight remains below 10% in all of them. Few of them are RevenueShares Global Growth Fund (RGRO), ALPS Emerging Sector Dividend Dogs ETF (EDOG) and EGShares EM Quality Dividend ETF (HILO). In addition, handful of companies from Czech Republic trade in the U.S. over-the-counter. The Prague Stock Exchange Index has reported 2.49% returns year-to-date in 2015.

Poland

A street in Gdansk, Poland.

A street in Gdansk, Poland.

Poland has grown at an average annual rate of 4% since its inclusion in the European Union in 2004. It was the only EU economy which remained shielded from recession during the economic downturn of 2008-09. The $548 billion ‘high income OECD’ country is driven by a combination of service and industrial sector. It also has a strong domestic demand and private consumption. The economy grew at 3.4% in 2014.

The iShares MSCI Poland Capped ETF (EPOL) and Market Vectors Poland ETF (PLND) are the two exchange traded funds providing access to Poland stock markets. Other than these, many stocks are traded in the U.S. over-the-counter. The Warsaw stock exchange index WIG20 is down by 9.08% year-to-date in 2015.

Qatar

Doha, Qatar.

Doha, Qatar.

Qatar, a member of OPEC is among the fastest growing economies as well as highest per-capita income countries in the world. Qatar has grown at an average annual rate of 12.97% since 2005 till 2014. Oil and natural gas account for roughly 55% of its GDP while the remaining is contributed by manufacturing, construction, and financial services sectors. Qatar’s economy has remained strong despite the sharp drop in oil prices due to its relatively diversified economy as well as conservative budgetary fiscal policies and large investment spending.

The iShares MSCI Qatar Capped ETF (QAT) provides focused exposure to Qatari stocks. There are few other ETFs that provide limited exposure towards Qatar along with other countries; two of these ETFs are WisdomTree Middle East Dividend ETF (GULF) and Market Vectors Gulf States Index ETF (MES). The QE All Share Index is currently down by 1.42% year-to-date in 2015.

Egypt

The Pyramids of Giza, Egypt.

The Pyramids of Giza, Egypt.

The World Bank classifies Egypt as a ‘lower middle income’ country. Although the economy has grown at a moderate pace, the progress has not been sufficient enough to cater to its rapidly growing population. In the past ten years (2005-2014), Egypt grew at a fast pace of 5.9% in the first six years however, growth substantially fell to an average of 2% since 2011 due to the uncertain political and policy environment. Starting 2014, the government has made initiated reforms which should help reduce the deficit and improve economic efficiency going forward.

The Egyptian Index EGX 30 delivered impressive returns of 50.80%, 24.17% and 31.61% in the years 2012, 2013 and 2014. The index is currently down at 14.09% year-to-date in 2015. Investors can access these markets through the Market Vectors Egypt ETF (EGPT) or via stocks trading as ADR over-the-counter like the Commercial International Bank (CIBEY) and Lecico Egypt SAE (LECIY) among other companies.

Greece

The Acropolis, Athens, Greece.

The Acropolis, Athens, Greece.

Greece has received bailout packages more than once in the past five years. The economy contracted for six years in continuation since 2008 before showing positive growth of 0.8% in 2014. Greece remains fragile as there’s still uncertainty regarding its future in the euro zone. In an atmosphere of dampened investor confidence, the growth projections remain weak for 2015.

Greece as the many stocks mainly from the shipping industry trading on NYSE and Nasdaq, some of them are: Capital Product Partners L.P. (CPLP), Diana Containerships, Inc. (DCIX), Euroseas Limited (ESEA) and Top Ships, Inc. (TOPS). However, there are no ETFs which are totally oriented towards Greece; the Global X FTSE Greece 20 ETF (GREK) provides a 75% allocation towards Greece while the rest of the ETFs have 10% or less orientation towards Greece. The Athens Stock Exchange General Index is currently down 14.04% year-to-date in 2015.

Russia

St. Basil's Cathedral, Moscow, Russia.

St. Basil's Cathedral, Moscow, Russia.

Russia transformed from a centrally planned economy to a market-based open economy after the fall of the Soviet Union in 1991. Russia has achieved great economic success on the back of domestic consumption, oil and a politically stable environment. The economic growth in recent years has dampened due to imposition of sanctions as well as the fall in oil prices. The trillion dollar economy is expected to contract in 2015 before recovering with 0.7% growth in 2016 and 2.5% 2017 as per the IMF.

Russia’s Mobile Telesystems OJSC (MBT) and Mechel OAO (MTL) trade on the NYSE in addition to many over-the-counter stocks trading in America. Market Vectors TR Russia ETF (RSX), iShares MSCI Russia Capped ETF (ERUS), SPDR S&P Russia ETF (RBL) and Market Vectors Russia Small-Cap ETF (RSXJ) are few Russia oriented exchange traded funds. The Russian MICEX Index is among the best performing in 2015 with 22.44% year-to-date.

Notes: The year-to-date returns are as on October 21, 2015, the GDP figures are based on the World Bank data.

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.

Prableen Bajpai

Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.

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