Single-Country Emerging Market ETFs: A Review Since Market Bottom

by on April 29, 2014 | ETFs Mentioned:

Thanks to the proliferation of ETFs over the years, more and more investors have started to shed their home-country bias. Education and ease-of-use have been the driving forces that have prompted countless investors to geographically diversify their portfolio’s equity component with ETFs; now more so than ever, investors are being mindful of their regional exposure and taking steps to ensure they are favorably positioned to take advantage of recoveries in various corners around the globe [see also Foreign Currency Risk 101: What Investors Need To Know].

In light of the U.S. bull market turning five years old this past March, we’ve been taking a look back to the market bottom in 2009 and reviewing how major assets have performed since the depths of the financial crisis. Thus far we have reviewed the following:

Today, we’re continuing with this theme and recapping the performances of various single-country emerging markets ETFs since the U.S. stock market bottomed out; please note that the returns below are cumulative and based on adjusted monthly closing prices spanning 3/1/2009 through 4/1/2014.

Europe & Africa

The comparison below includes the emerging economies of Russia and South Africa, as well as Turkey; although the latter country technically belongs to the continent of Asia, we’ve grouped it with the other two given its geographic proximity:

  • Market Vectors Russia ETF (RSX, B+): This country ETF rebounded sharply after the U.S. market bottomed out and for a while it battled Turkey as the top performer from the region. However, as the eurozone recovery kept losing steam, so too did the Russia ETF; this fund peaked in mid-2011 and has since dragged sideways with a downward bias amid the more recent political turmoil with Ukraine.
  • MSCI Turkey ETF (TUR, A-): The Turkey ETF staged a steep rebound right from the start, after which it experienced a sharp correction in the second half of 2011. TUR attempted to summit its peak set in October of 2010 at the start of 2013; however, political unrest and taper-tantrum fears sparked profit taking pressures that knocked it back to its 2011 lows.
  • MSCI South Africa ETF (EZA, B-): This country ETF has been a laggard in the group since the market bottom; EZA has been oscillating between major support ($55 a share) and resistance ($70 a share) levels since peaking in mid-2011.

Latin America

The comparison below includes the emerging economies of Mexico, Brazil, and Chile:

  • MSCI Mexico Capped ETF (EWW, A): This country ETF has been the clear winner from this group after taking the lead from Brazil in late-2010. One reason for Mexico’s outperformance is likely the fact that its economy is largely dependent on the United States more so than China, which is the top trading partner of Brazil and Chile. Because the economic recovery in the U.S. has progressed while growth in China has slowed, emerging markets dependent on the Asian powerhouse have been dragging since peaking in mid-2011.
  • MSCI Brazil Capped ETF (EWZ, A-): This commodity powerhouse took the early lead right after the market bottomed out. However, rising inflation, weakening demand for raw materials from China, and more attractive growth prospects in the U.S. have prompted many to abandon this South American exporter.
  • MSCI Chile Capped ETF (ECH, C+): This country ETF’s performance mirrors that of EWZ; the Chile ETF lagged behind Brazil initially, although it managed to hold up better than EWZ during the pullback period spanning from mid-2011 though the start of 2014. Chile’s reliance on copper exports is a big reason why ECH’s performance is so correlated to the Chinese economy.

Asia Pacific

The comparison below includes the emerging economies of China, India, Malaysia, and Thailand:

  • China Large-Cap ETF (FXI, A): Despite boasting the biggest economy in terms of GDP from this group, this country ETF has been the clear laggard throughout the entire duration of the ongoing bull market. High growth expectations coupled with an economic slowdown are perhaps the two biggest factors that have contributed to FXI’s underperformance, while the recent taper scare in May of 2013 only added to the list of uncertainties plaguing this emerging economy.
  • India Earnings Fund (EPI, C+): After staging a steep rebound initially, this country ETF was the first from the group to start pumping the brakes; notice how EPI peaked by the end of 2010, while its neighboring country ETFs managed to climb higher for a few more months before succumbing to broad profit-taking pressures that permeated the entire region.
  • MSCI Malaysia ETF (EWM, B+): This country ETF stands out from the rest, along with THD, seeing as how it has managed to climb to new highs following the slump in mid-2011, which is still taking its toll on the rest of the funds. For the most part, EWM has been steadily climbing higher since the market bottom, although its returns pale in comparison to those of THD.
  • MSCI Thailand Capped ETF (THD, C+): This country ETF has been this group’s clear winner from the start. More impressively, it has managed to expand its lead over the rest of the pack by a very wide margin since its neighboring country ETFs peaked in mid-2011. Despite the recent political turmoil in the country, THD has managed to hold onto hefty gains even amid China’s slow down.

The Bottom Line

We’ve all heard that past performance is no guarantee of future returns; with that being said, those who study the ups and downs on Wall Street can learn from history’s lessons and take note of any similarities between past and present periods of prosperity as well as hardship. Investors who are aware of historical tendencies and prevailing trends can potentially make more informed decisions when it comes to establishing exposure to foreign markets.

Follow me on Twitter @SBojinov

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Disclosure: No positions at time of writing.