Emerging market (EM) ETFs had a great run in the last one year (as of February 17, 2017) with iShares MSCI Emerging Markets EEM returning over 26%. This year, the segment is doing well on improving global economic fundamentals and accommodative developed market central banks that are still keeping interest rates low. The fund is up 9.7% so far this year (as of February 17).
Though EMs used to underperform in a rising rate environment, the bloc has become a lot more insulated in recent times. The broader emerging market equites saw solid gains in the last one year (as of February 16, 2017) despite a 67 bps rise in yields on 10-year U.S. Treasury.
As per Deutsche Bank, the correlation between EM performance and the benchmark U.S. Treasury yields since 2010 has been positive except for 2013, when taper talks weighed heavily on emerging market securities. In 2013, the correlation between EM equities and the U.S. 10-year yield was negative 69%. But if we strike out that period, the correlation turns out to be positive 74% (read: 6 Bond ETFs to Play Higher Rates).
BalckRock believes that developed market reflation should underpin the China-EM pickup as part of the growth momentum in the developed world would trickle down to emerging markets in the form of trade and investments.
Further, to boost growth, several emerging economies have been resorting to policy easing via interest rate cuts or offering some accommodative measures. Within the set, Brazil, India, Russia and Indonesia deserve a mention.
While broader emerging markets are always options, we highlight a few country-specific ETFs that could be great picks with a long-term view.
India
India has been the talk of the investment world lately thanks to its demonetization decision in November. As much as “86% of Indian currency and 12% GDP got stalled overnight” to eradicate unaccounted and untaxed money. Some analysts in fact had cut India’s GDP growth forecast then.
However, the release of the Union Budget 2017 in early February spurred optimism in India equities all over again. Factors like a business-friendly operating environment, opening up of doors to foreign investors, scrapping of tax on foreign portfolio investors and pledges for 4 trillion rupees of investment in the infrastructure sector have helped the investment sentiments lately.
Added to this, a rising middle income population makes India ETFs like iShares MSCI India Small-Cap ETF SMIN and Columbia India Infrastructure ETF INXX good long-term ETF investments.SMIN and INXX carry a Zacks ETF Rank #2 (Buy) and #3 (Hold), respectively. SMIN has a positive weighted alpha of 35.30 while INXX has a positive weighted alpha of 32.50. A positive weighted alpha hints at more gains.
Russia
Russia ETFs had a sound 2016 thanks to a pickup in economic fundamentals. The Russian economy shrank 0.2% in 2016, following a downwardly revised 2.8% contraction in 2015. Also, stabilization in oil prices provided a boost to the energy-heavy Russia economy.
If this was not enough, U.S. President Trump’s friendly relationship with Putin is also likely to favor the fund. As per an article published on barrons.com, “about 33% of the investors surveyed believe Russian stocks will perform the best (read: Top ETF Stories of the Fourth Quarter).”
So, it could be a right time to invest in VanEck Vectors Russia Small-Cap ETF RSXJ. The fund has a Zacks ETF Rank #3 with a High risk outlook. It has a positive weighted alpha of 124.80.
Brazil
Brazil stocks and ETFs may have been hitting highs for quite some time now, and prospects for further rate cuts still promise some hope for those securities. Brazilian stocks and ETFs have been a tear with the large-cap Brazil fund iShares MSCI Brazil Capped EWZ adding over 17% so far this year (as of February 17, 2017). EWZ has a Zacks ETF Rank #3 and a positive weighted alpha of 80.60.
In view of cooling inflation (which was once sky-high) and soft economic growth, Brazil embarked on aggressive policy easing. The country slashed interest rates by 25 bps for the first time in four years in mid-October, 25 bps in November and 75 basis points to 13.00% in early January (read: Brazil ETFs Are Piping Hot: Time to Buy?).
Consumer prices grew 0.38% in January sequentially, representing the minimum rise for January since 1994, as per Reuters. Lower inflation will be helpful for President Michel Temer as he tries to clear an austerity agenda through Congress.
China
The Chinese economy too is shaping up well lately after a tumultuous 2016. Two under-the-watch zones of the Chinese economy – manufacturing and export – showed signs of recovery. Factory output, a nagging concern, lately entered into the growth zone leaving behind the stretch of contraction, while exports jumped 7.9% year over year in January, breezing past expectations of a 3.3% rise, due to solid global demand (read: 2017 Brings Luck for China ETFs: Will the Rally Last?).
Most of the China ETFs have been on a tear this year. Guggenheim China Technology ETF CQQQ and Global X China Industrials ETF CHII are some of the products that investors can play for outsized gains. Though CQQQ has a Zacks ETF Rank #4 (Sell), it has a positive weighted alpha of 29.30. However, CHII has a Zacks ETF Rank #3 and a positive weighted alpha of 26.00.
Want key ETF info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
Image: Bigstock
4 EM ETFs Poised to Be Great Buys
Emerging market (EM) ETFs had a great run in the last one year (as of February 17, 2017) with iShares MSCI Emerging Markets EEM returning over 26%. This year, the segment is doing well on improving global economic fundamentals and accommodative developed market central banks that are still keeping interest rates low. The fund is up 9.7% so far this year (as of February 17).
Though EMs used to underperform in a rising rate environment, the bloc has become a lot more insulated in recent times. The broader emerging market equites saw solid gains in the last one year (as of February 16, 2017) despite a 67 bps rise in yields on 10-year U.S. Treasury.
As per Deutsche Bank, the correlation between EM performance and the benchmark U.S. Treasury yields since 2010 has been positive except for 2013, when taper talks weighed heavily on emerging market securities. In 2013, the correlation between EM equities and the U.S. 10-year yield was negative 69%. But if we strike out that period, the correlation turns out to be positive 74% (read: 6 Bond ETFs to Play Higher Rates).
BalckRock believes that developed market reflation should underpin the China-EM pickup as part of the growth momentum in the developed world would trickle down to emerging markets in the form of trade and investments.
Further, to boost growth, several emerging economies have been resorting to policy easing via interest rate cuts or offering some accommodative measures. Within the set, Brazil, India, Russia and Indonesia deserve a mention.
While broader emerging markets are always options, we highlight a few country-specific ETFs that could be great picks with a long-term view.
India
India has been the talk of the investment world lately thanks to its demonetization decision in November. As much as “86% of Indian currency and 12% GDP got stalled overnight” to eradicate unaccounted and untaxed money. Some analysts in fact had cut India’s GDP growth forecast then.
However, the release of the Union Budget 2017 in early February spurred optimism in India equities all over again. Factors like a business-friendly operating environment, opening up of doors to foreign investors, scrapping of tax on foreign portfolio investors and pledges for 4 trillion rupees of investment in the infrastructure sector have helped the investment sentiments lately.
Added to this, a rising middle income population makes India ETFs like iShares MSCI India Small-Cap ETF SMIN and Columbia India Infrastructure ETF INXX good long-term ETF investments.SMIN and INXX carry a Zacks ETF Rank #2 (Buy) and #3 (Hold), respectively. SMIN has a positive weighted alpha of 35.30 while INXX has a positive weighted alpha of 32.50. A positive weighted alpha hints at more gains.
Russia
Russia ETFs had a sound 2016 thanks to a pickup in economic fundamentals. The Russian economy shrank 0.2% in 2016, following a downwardly revised 2.8% contraction in 2015. Also, stabilization in oil prices provided a boost to the energy-heavy Russia economy.
If this was not enough, U.S. President Trump’s friendly relationship with Putin is also likely to favor the fund. As per an article published on barrons.com, “about 33% of the investors surveyed believe Russian stocks will perform the best (read: Top ETF Stories of the Fourth Quarter).”
So, it could be a right time to invest in VanEck Vectors Russia Small-Cap ETF RSXJ. The fund has a Zacks ETF Rank #3 with a High risk outlook. It has a positive weighted alpha of 124.80.
Brazil
Brazil stocks and ETFs may have been hitting highs for quite some time now, and prospects for further rate cuts still promise some hope for those securities. Brazilian stocks and ETFs have been a tear with the large-cap Brazil fund iShares MSCI Brazil Capped EWZ adding over 17% so far this year (as of February 17, 2017). EWZ has a Zacks ETF Rank #3 and a positive weighted alpha of 80.60.
In view of cooling inflation (which was once sky-high) and soft economic growth, Brazil embarked on aggressive policy easing. The country slashed interest rates by 25 bps for the first time in four years in mid-October, 25 bps in November and 75 basis points to 13.00% in early January (read: Brazil ETFs Are Piping Hot: Time to Buy?).
Consumer prices grew 0.38% in January sequentially, representing the minimum rise for January since 1994, as per Reuters. Lower inflation will be helpful for President Michel Temer as he tries to clear an austerity agenda through Congress.
China
The Chinese economy too is shaping up well lately after a tumultuous 2016. Two under-the-watch zones of the Chinese economy – manufacturing and export – showed signs of recovery. Factory output, a nagging concern, lately entered into the growth zone leaving behind the stretch of contraction, while exports jumped 7.9% year over year in January, breezing past expectations of a 3.3% rise, due to solid global demand (read: 2017 Brings Luck for China ETFs: Will the Rally Last?).
Most of the China ETFs have been on a tear this year. Guggenheim China Technology ETF CQQQ and Global X China Industrials ETF CHII are some of the products that investors can play for outsized gains. Though CQQQ has a Zacks ETF Rank #4 (Sell), it has a positive weighted alpha of 29.30. However, CHII has a Zacks ETF Rank #3 and a positive weighted alpha of 26.00.
Want key ETF info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>