Eric Dutram: China remains an economic behemoth that dominates the broad emerging market discussion. For good reason too, as the nation is currently the 2nd largest economy in the world and is expected to pass the U.S. in terms of total GDP within a decade.
Still, many are starting to grow quite concerned over the short-term health of the Chinese market. Debt concerns are building over local municipalities while the inability of China to focus more on consumption leaves the nation dangerously dependent on exports, many of which go to countries—especially those in the EU—which are at or already in a recession.
If that wasn’t enough, a general slowdown is already starting to afflict the China market as well, leaving the country even more dependent on stimulus to jumpstart growth prospects. However, it remains to be seen how the new Chinese leadership will handle this crisis and how they can boost growth without increasing inflation to intolerable levels (read Forget FXI: Try These China ETFs Instead).
Given these trends, some investors are beginning to reconsider their investment in China, at least in the short-term. Fortunately with the rise of Exchange-Traded Funds, exposure to various emerging markets beyond the People’s Republic is quite easy.
ETFs now exist that represent a variety of small markets that investors were once unable to tap into. This is great news for those seeking emerging market holdings that go beyond China as several of these markets are still going strong and could be poised for solid returns in the months ahead as well.
In light of this, we have highlighted three of the top ETFs that are tracking emerging markets from around the world. Not only have all three of these ETFs been solid performers, but they all receive a Zacks ETF Rank of 2 or better, suggesting that, according to our analysis, they are poised to outperform their peers in the short to medium time frame.
The entire Southeast Asian market has done quite well so far in 2012, although Thailand has certainly led the way. The country has rebounded from severe floods and riots to be a king in terms of market returns with the country expected to grow at a robust 7.5% rate in 2013.
In order to target this market, ETF investors should look to the solid performer of the MSCI Thailand Investable Market Index Fund (NYSEARCA:THD) for exposure. The ETF holds 85 stocks in its basket and charges investors 59 basis points a year in fees (read Is the Thailand ETF Unstoppable?).
The ETF is concentrated on financials (38%), but energy (19.9%), and materials (11%), also receive double-digit weightings as well. While the yield isn’t too impressive at 1.9% in 30 Day SEC terms, the performance has been solid as the product has risen by over 22% in the past 52 week period.
Currently, THD receives a Zacks ETF Rank of 1 or ‘Strong Buy’.
For investors seeking South American exposure, a closer look at the Chilean market could be a great idea. The nation is heavily focused on commodities which have been doing well as of late, while despite the slowdown in some markets, growth rates have been holding up quite well, suggesting that the Chilean economy is more immune to global shocks than some might think.
For investors who want this market in their portfolio, the MSCI Chile Investable Market Index Fund (NYSEARCA:ECH) is a great choice. The product holds just 40 securities in its basket and charges investors 59 basis points a year in fees (Andean ETFs: A Better Way To Play Emerging Markets?).
In terms of sector exposure, assets are well spread out as utilities and industrials both make up slightly more than 20% while financials and materials also account for over 15% each as well. ECH has been much more volatile and its yield comes in at just 1.7%, but it could be presenting a solid value to investors looking for a Latin American play at this time.
Currently, ECH receives a Zacks ETF Rank of 2 or ‘Buy’.
South Korea- EWY
While some may not consider South Korea to be an emerging market any more, many do, suggesting that the country is a lower risk choice in the broader developing market world. Unlike many markets in the region, inflation is quite low while rates are still reasonable, meaning that the central bank still has plenty of tools at its disposal to help keep growth rates at a solid level.
Access to this market can easily be achieved by iShares’ ultra popular MSCI South Korea Index Fund (NYSEARCA:EWY). This product has close to $3 billion in AUM, holds just over 100 stocks, and like the other two ETFs on this list, charges 59 basis points in fees per year (read South Korea ETF Investing 101).
Top sectors for this fund include a nearly 32% allocation to technology and then an 18% weight to consumer discretionary, while industrials, financials, and materials all have a double digit weighting as well. Yield is rather low on this fund, but it does offer up an exposure profile that is quite different from others in the country-specific ETF world and it has performed in line with the S&P 500 over the past 52 weeks, although it has outperformed in the most recent quarter.
In 1978, Len Zacks discovered the power of earnings estimates revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank, a peerless stock rating system whose Strong Buy recommendation has an average return of 26% per year.