Establishing exposure to emerging market economies has gained traction in recent years, as investors embrace this corner of the wold for its lucrative growth opportunities. Though many of these economies have flourished over the years, thanks in part to a growing middle class and increased trade relationships, some have not fared as well. Several European emerging markets, such as Poland and the Czech Republic, have seen growth curbed by the eurozone’s debt crisis, while China’s recent economic figures have underwhelmed investors [see also How To Pick The Right ETF Every Time].
In a recent report, however, Ernst & Young took a closer look at the vast number of emerging economies and identified what they believe is a much more promising segment of the developing world – the “rapid growth markets” or RGMs. The firm expects growth in RGMs to accelerate from 4.7% in 2012 to 6.0% in 2014 – an alluring estimate that may warrant a closer look at these economies. For those investors looking to tap into these rapid growth markets, we highlight several ETF options:
According to Ernst & Young, Turkey is favorably positioned to benefit from its close proximity to the Middle East, as well its location between Europe and Asia. The company forecasts the country’s GDP growth to accelerate to 3.5% in 2013 and 5.4% in 2014 [see Euro Free Europe Portfolio]:
- MSCI Turkey Investable Market Index Fund (TUR, B+): TUR is currently the only ETF that exclusively focuses on equities from the country. The fund consists of just under 100 stocks, the majority of which are large and mid-cap companies. TUR also offers exposure across a wide array of sectors, though financial services equities do account for nearly half of total assets.
- Accuvest Global Opportunities ETF (ACCU, C): Though this fund does not dedicate all of its assets to Turkey, ACCU is an interesting option for those investors who may want to employ a “country rotation” strategy, which allows investors to tilt exposure to the most attractive markets on a monthly basis. Currently the fund allocated roughly a quarter of its portfolio to equities from Turkey. Investors should note that ACCU’s price tag is quite steep, coming in at 1.25%.
Southeast Asia: Lower Trade Barriers Boost Growth
In recent years, rapid development of global supply chains in Southeast Asia has allowed the region to lower barriers to trade, increasing inter-region and foreign trade as well as creating an incentive for more capital inflows. Ernst & Young feel that these factors will contribute to Southeast Asia’s future growth, and expect the region GDP to come in at 5% in 2014:
- FTSE ASEAN 40 ETF (ASEA, B+): This is a nice option for those wanting broad-based exposure to the Southeast Asia region. The fund invests in equities from Indonesia, Philippines, Singapore, Malaysia and Thailand [see Visual Risk Analysis Of ASEA].
While there are other broad-based Asia-Pacific options, investors may be interested in looking at the single-country ETFs that make up the region:
- MSCI Indonesia Investable Market Index Fund (EIDO, B+)
- MSCI Philippines Investable Market Index Fund (EPHE, B)
- Malaysia Index Fund (EWM, A)
- MSCI Singapore Index Fund (EWS, A-)
- MSCI Thailand Index Fund (THD, B+)
- Market Vectors Vietnam ETF (VNM, B)
Mexico and Chile: Bright Spots In Latin America
From all the Latin American countries, Mexico and Chile have been able to withstand the global economic downturn and have continued to carry strong momentum throughout the years. Ernst & Young believe that increased manufacturing trade in the countries will open up new growth opportunities, and may help hedge the region from commodity price fluctuations. In 2014, the company expects Chile and Mexico to grow 5.0% and 4.8%, respectively:
- MSCI Chile Index Fund (ECH, B-): This is currently the only fund that exclusively focuses on Chilean equities. ECH’s portfolio consists of roughly 40 holdings, spread out nicely across various sectors, including industrials, utilities, financial services and consumer cyclicals.
- MSCI Mexico Inded Fund (EWW, A): Another one-of-a-kind ETF, this fund invests in nearly 50 stocks, the majority of which are giant and large cap equities. EWW’s top three sector allocations are consumer defensive, basic materials, and communication services equities.
Follow me on Twitter @DPylypczak.
Disclosure: No positions at time of writing.