5 ETFs For Fiscally-Sound Emerging Markets

by on July 26, 2012 | ETFs Mentioned:

The aftermath of the most recent financial crisis has yet to be fully resolved as much of the developed world is still plagued by the weight of its own debt. In Europe, lawmakers are struggling to ensure stability as many of the largest economies in the region are slowly and surely losing their fiscal footing amidst a storm of seemingly never-ending debt drama. The clouds of uncertainty are gathering over the homefront as well, with the United States facing a fiscal cliff of its own. As such, investors are struggling to find opportunities with attractive risk/return profiles, although several foreign markets may offer some relief from the otherwise gloomy, debt-stricken, global backdrop [see also Poland ETFs: A Bright Spot In A Gloomy Region].

With debt burdens and towering deficits spreading far and wide, the search for fiscally-sound investment opportunities abroad has been no easy task. Nonetheless, several emerging markets may offer an escape from all of the uncertainty, offering relative safety without sacrificing upside potential. Below we take a look at five ETFs that tap into overseas markets, which boast some of the lowest debt-to-GDP ratios in the world. This well-known measure offers valuable insights into a country’s financial health; by comparing what a country owes relative to its economic output, investors can gain a better understanding of just how well a country is positioned when it comes to paying back its debt without breaking the bank. In simpler terms, a lower debt-to-GDP ratio implies a lower risk of default.

The debt-to-GDP ratios highlighted below are cited from TradingEconomics.com, which complies historical data and economic indicators from official sources, including the World Bank, International Monetary Fund and central banks, and national statistic bureaus [see also 17 ETFs For Day Traders].

1. Market Vectors Russia Small-Cap ETF (RSXJ)

Russia boasts an impressively low 9.6% debt-to-GDP ratio, trailing only behind Saudi Arabia and Estonia for which there are currently no ETFs available. This energy-centric economy has yet to fall prey to an uncontrollable credit boom, making a standout in a region otherwise characterized by towering debts. RSXJ’s portfolio of predominantly mid and small cap size securities may offer a better play on the local economy compared to its large-cap counterpart RSX, which is dominated by multinational energy and financial firms [see also Commodity Plays In The 2012 Dividend Achievers].

2. MSCI Chile Index Fund (ECH)

Chile has long been considered as perhaps the most politically stable country in South America, and with an 11.2% debt-to-GDP ratio it rightfully deserves the reputation as the most fiscally-sound economy in the region period. ECH has accumulated close to $585 million in assets under management since launching in late 2007, making it the fourth most popular offering in the Latin America Equities ETFdb Category. From a sector breakdown perspective, utilities and financial services are the top two holdings, giving it a well-balanced risk/return profile.

3. Market Vectors Gulf States Index ETF (MES)

The oil-centric economies of the United Arab Emirates and Qatar boast debt-to-GDP ratios of 16.9% and 17.8% respectively, showcasing the fiscally-sound nature of this corner of the world. Investors can tap into both of these often overlooked countries through a single ticker. Van Eck’s MES offers broad-based exposure to publicly-traded companies that are headquartered in countries belonging to the Gulf Cooperation Council, with Kuwait receiving roughly one-third of total assets, followed by fairly equal allocations to stocks from Qatar and the United Arab Emirates. From a sector breakdown perspective, this ETF is surprisingly dominated by financial services and communication services [see also War In Syria, Crisis In Europe: Short Russia ETFs].

4. MSCI All Peru Capped Index Fund (EPU)

As the fifth-largest producer of gold in the world (and first in Latin America) Peru boasts a debt-to-GDP ratio of 24.3%. This South American country is quickly affirming its importance on the global economic stage thanks to its flourishing international trade, achievement of investment grade status, and prudent fiscal spending. EPU’s basket of holdings is well diversified among equities of all market cap sizes, giving it an edge over many other foreign equity ETFs, which are often dominated by giant and large cap stocks. 

5. Market Vectors Indonesia Index ETF (IDX)

Indonesia is the largest economy in the quickly growing Southeast Asia region, as well as one of the most prominent emerging markets in the world period. As a member of the G-20 and a major trading partner to China, Indonesia is home to a rapidly growing middle class and boasts a debt-to-GDP ratio of 25%. Investors looking for broader exposure may wish to consider the iShares MSCI Indonesia Investable Market Index Fund (EIDO), which holds more than twice the total number of securities found in IDX; however, EIDO charges 0.61% in expenses versus IDX’s price tag of 0.57% [see also Asia-Centric ETFdb Portfolio]. 

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Disclosure: No positions at time of writing.