Emerging Market ETFs: More Than BRIC

As the U.S. and most developed countries struggle to get out of the global recession, faster-growing emerging markets may be the answer to many questions.  When speaking of emerging international markets most automatically think of Brazil, Russia, India and China, the BRIC countries, but there are other opportunities to consider.

One such opportunity lies in Africa.  South Africa is known for its mining and production of precious metals and as long as the dollar remains weak and investors worry about inflation, precious metals will remain a hot commodity.  To further boost its appeal, South Africa’s government has implemented a spending restraint which has enabled its currency to remain relatively strong and its debt ratios favorable.  The International Monetary Fund (IMF) pegs South Africa’s debt-to-GDP ratio somewhere in the 35% to 40% range.  The easiest way to gain exposure to the nation is through the iShares MSCI South Africa Index ETF (EZA). 

Another opportunity lies in Eastern Europe in the emerging nation of Turkey.  Turkey is attractive because its consumer confidence levels are rising, it has a relatively young workforce, it boasts a thriving manufacturing sector and has an up and coming financial sector which is driven by an increase in consumer and business lending.  Additionally, Turkey is expected to expand 3.5% to 4% in 2010 and is expected to see an uptick in tourism which will be help generate revenue.  Lastly, Standard & Poor’s recently raised the nation’s long-term foreign currency and local currency credit ratings to BB and BB+, respectively.  Gaining exposure to Turkey can be done through the iShares MSCI Turkey Invest Mkt Index (TUR).

Mexico has undergone a huge fiscal face lift which is drawing attention as well.  The emerging nation recently recorded a record foreign currency reserve and an investment grade debt rating, helping the Mexican Peso gain a little ground against its counterparts.  Additionally, in the first quarter of 2010, the nation economy grew by 4%, which has been heavily driven by strong consumer demand.  Lastly, Mexican IPO activity is on the rise, with as many as six companies potentially going public this year- making the launches the first since 2008.  Mexico can be accessed through the iShares MSCI Mexico Investable Mkt Idx (EWW).

The last place to look is South Korea.  This Asian nation is attractive for many reasons.  First, it has heavy ties with China, so as China continues to remain a global economic powerhouse, South Korea will indirectly reap the benefits.  Secondly, South Korea’s central bank has painted a bright optimistic future for the country.  It anticipates exports to grow by 11.9%, private spending to jump by 4%, capital investment to soar by 13.4% and inflation to be a mere 2.6% for the year.  Lastly, there doesn’t seem to be any employment issues in the nation, as it is near full employment.  One thing that could put a damper on South Korea’s growth and prosperity are the political issues that have recently been unfolding between the nation and North Korea.  A possible play on South Korea is the iShares MSCI South Korea (EWY).

A notable mention which enables one to gain exposure to these markets without a specific county-focus, adding a bit more diversification is the Dow Jones Emerging Markets Composite Titan Index Fund (EEG).  EEG gives exposure to South Africa and Mexico, in addition to the BRIC nations.  

Although these nations and ETFs show several signs of prosperity, keep in mind that they come with inherent risks, lack of liquidity being one of the biggest.  Implementing an exit strategy, like one found at www.SmartStops.net can help mitigate these risks.

Disclosure: No Positions


About etftutor
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton. He is contributing author on The Street - his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville. Prior to this, Mr. Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds

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