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Rough trading continues in the emerging market space, as more global worries hit international stocks. This is largely due to ongoing concerns over the end of the Federal Reserve’s QE program, and how this might impact foreign flows out of riskier emerging markets.
Clearly, this has led to a risk-off environment, with many investors pulling out capital from higher risk markets around the globe. While this trend has impacted almost all the world’s top emerging markets, we have seen especially severe losses in a number of Southeast Asia markets as of late, as these were among the biggest gainers over the past year or so (read Southeast Asia ETF Investing 101).
Southeast Asia in Focus
In particular, two countries in the region were leading the way with gains, Thailand and the Philippines. These two markets had a banner 2012 and continued this run to start 2013, though they have since succumbed to the downward trend here in June.
In Thailand, investors have seen double digit losses in the country’s main benchmark in just the past few weeks alone. Furthermore, the nation’s currency, the baht, has also struggled, and is now at an eight month low against the greenback, according to Bloomberg.
Meanwhile, in the Philippines, events are just as bad thanks to a string of unfavorable news in that market as well. The country’s peso also weakened against the greenback, while a sluggish jobs report didn’t help matters either (also read Indonesia ETFs Slide as Rupiah Tumbles).
To top things off, both countries have seen big outflows from foreign investors over the past few weeks. These investors represent a vital source of capital for these emerging nations, so the loss of their interest represents another blow for both of these once surging markets.
This disastrous string of news reports and the general lack of demand for emerging markets, has led to a big sell-off in many Southeast Asia ETFs. In particular, investors can look to funds tracking Thailand and the Philippines, the iShares MSCI Thailand Capped ETF (THD - ETF report) and the iShares MSCI Philippines Investable Market Index Fund (EPHE - ETF report), respectively, for clues about these nations and their performance.
Below, we profile these ETFs in a little greater detail, and discuss some of the specifics behind their recent slumps:
This fund tracks the MSCI Philippines Investable Market Index, giving investors access to about 45 companies from the nation. Exposure costs 60 basis points a year in fees, although volume and assets are pretty good, while bid ask spreads are quite low (read Too Late to Buy the Philippines ETF?).
In terms of recent performance, EPHE was down about 5.2% in Tuesday trading on elevated volume levels. Meanwhile, over the past month, the ETF has lost about 16%, crashing deep into bear territory, and underscoring just how devastating the recent slump has been.
This ETF follows the MSCI Thailand IMI 25/50 Index, a benchmark that holds about 110 Thai securities. The fund also costs 60 basis points a year in fees, while its volume and assets under management are even more impressive, with the AUM coming in just shy of $1 billion (also see Thailand ETF Slips on Rate Cut).
However, THD has been even more impacted by the recent turn of events, with shares in the popular ETF sliding by a little over 6% in Tuesday trading. Meanwhile, the ETF has also cratered by about 16% in the last one month, just like its EPHE counterpart.
Long Term Outlook
Despite this panic, the outlook for these nations is still quite promising. Both have young, quickly growing populations that are entering the consumer class, and a solid standing from a budgetary perspective.
Still, the near term pain could continue in both of these funds, especially if investors start to believe in talk of Fed tapering. Given this, investors may want to consider staying on the sidelines for these two ETFs for the time being, though risk tolerant long-term investors may want to consider this recent slump a buying opportunity, should they have the patience for extreme volatility.
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