Emerging markets exchange traded funds have perked up a bit in a recent days, but the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) will finish 2014 in the red.
Looking to 2015, emerging markets ETFs have the potential to breakout of multi-year slumbers, but selectivity is the name of the game for investors. On a regional level that means a preference for developing Asian markets over Latin American equivalents. [Don’t Expect Much Out of LatAm ETFs in 2015]
“Asymmetrical economic patterns of Asian developing markets distinguish those worthy of over-weights from those deserving market-neutral and below-market emphases. China, India, Taiwan, Philippines and South Korea earn over-weights because of their respectively superior economic outlooks vis-a-vis the rest of the region,” said S&P Capital IQ in a recent research note.
Led by ETFs such as the the iShares MSCI India ET (NYSEArca: INDA) and the WisdomTree India Earnings Fund (NYSEArca: EPI), the largest India ETF, India funds have been by far the best performers among the major funds tracking BRIC nations this year.
A new political environment in India, Asia’s third-largest economy, could foster changes that drive additional upside for India ETFs.
“What we found most compelling was Jayant Sinha’s characterization of India’s growth trajectory as one that will be both peaceful and sustainable in nature. This is a growth model he aptly termed “Japan-like,” drawing parallels to Abe and his administration circa 2012. Further, Sinha is confident in Modi’s reelection in 2019, which would set the stage for a Modi-led Indian rule over the next ten years. This would give the single-party-majority Congress sufficient time to put much-needed structural reforms in place,” according to a recent research piece by WisdomTree. [Investors Flock to India ETFs]
South Korea, Asia’s fourth-largest economy, also offers opportunity in 2015, particularly for the conservative investor looking for a lower beta emerging markets avenue.
“The Taiwanese, Philippine and South Korean stock markets also warrant over-emphases on account of their stable political regimes, reliable policymaking climates and healthy economic prognoses,” said S&P Capital IQ.
South Korean stocks could be ready to shed their disappointing ways and deliver significant upside to investors in 2015. Market observers expect South Korea’s benchmark Kospi to rise 14%, according to a Bloomberg survey of 11 strategists at firms including Barclays and Goldman Sachs.