Emerging Market ETFs: Lessons From Ireland

December 1st at 6:00am by Tom Lydon

The saying that we must study history or be doomed to repeat it certainly holds true for emerging market exchange traded funds (ETFs), which can look to Ireland for a few lessons.

In Ireland, one in eight is unemployed, the banking system remains fragile and defaults on home loans are on the climb, report Michael O’Sullivan and Rory Miller for The National. The easy flow of money over the last decade has not been invested prudently. Instead, Ireland, and most eurozone members, have witnessed their research and development spending as a percentage of GDP drop to 1.84%. [ETFs Fall Despite Ireland’s Bailout.]

Over here, President Obama has promised more than 3% of GDP to research and development, with a R&D-related tax incentive to boost activity. However, developed economies are struggling with poor balance sheets, which leaves little to further investments into the future.

Are emerging markets paying attention?

The more well-off emerging markets are purchasing assets and investing in infrastructure of the indebted developed economies. Money is being put to physical infrastructure and other “intangible” areas, such as sports franchises and financial services. It may be smarter for developing economies to put their wealth into their own education, health care, technology, innovation and financial services as a way to improve their global competitiveness. [Emerging Market Small-Cap ETFs Play Growth Story.]

When examining emerging market ETFs, take a look at where that kind of money is going. By putting the essential building blocks to a strong society in place early, those economies may be best poised to power ahead over the long haul.

Interestingly, some countries in the Middle East and Africa have among the highest levels of education spending relative to GDP: Zimbabwe spends 11% of GDP, Saudi Arabia spends 9.3% and Namibia spends 7.9%. When it comes to IT spending, Morocco spends 12.5% of GDP, South Africa spends 10.1%, Malaysia spends 9.7% and Hong Kong spends 9.2%.

Maybe the emerging markets have been paying closer attention than we thought!

With that in mind, consider ETFs like:

  • Market Vectors Gulf States (NYSEArca: MES)
  • Market Vectors Africa (NYSEArca: AFK)
  • PowerShares MENA Frontier Countries (NYSEArca: PMNA)

For more information on global economies, visit our global ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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