Believe It: Opportunities With Emerging Market ETFs

January 10th at 3:08pm by Tom Lydon

The developing economies have slowed down over the past year, but investors shouldn’t dismiss them just yet. Reforms and policy changes could help bolster some emerging market stocks and exchange traded funds.

Kristoffer Stensrud, the founder of Norway-based Skagen AS, which has outperformed funds run by Goldman Sachs and JPMorgan Chase over the past decade, believes that a series of elections in some emerging countries this year could led to economic reforms and stability, reports Ilana Friedman-Schroit for Bloomberg. [No One Likes Emerging Markets]

“There’s an election cycle starting this January in Egypt, India, Indonesia, Thailand and South Africa,” Stensrud said in the article. “South Africa is interesting because of the social unrest over the past year. They may be more committed to statutory reforms and we might see a change of policy or a change in government.”

Developing economies can still generate above-average returns as a growing middle class demands a higher standard of living. For instance, the rise in discretionary spending should help boost car sales.

“Cars in emerging markets are very interesting because penetration is low, demand is very high and affordability is rising sharply,” Stensrud added. “This gives these companies fantastic possibilities of growth.”

ETF investors can gain broad exposure to the emerging markets through the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) or the iShares MSCI Emerging Markets ETF (NYSEArca: EEM).

However, there are also country-specific ETFs available that target Stensrud’s country picks, including Market Vectors Egypt ETF (NYSEArca: EGPT), WisdomTree India Earnings ETF (NYSE: EPI), iShares MSCI Indonesia ETF (NYSEArca: EIDO), iShares MSCI Thailand Capped ETF (NYSEArca: THD) and iShares MSCI South Africa ETF (NYSEArca: EZA). [Egypt ETF Gets a Helping Hand From the Government]

“Emerging markets fundamentals are actually stronger now than they were in the past, and they are certainly stronger than developed-market countries, especially if you factor in the policy room for maneuver,” Stensrud said.

For more information on developing economies, visit our emerging markets 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.