Russia’s GDP is expected contract 7.5% this year, and the government is forecasting 2% growth in 2010 while many independent economists are estimating growth of as much as 5% next year, reports Jason Bush for Forbes. (Stumbling blocks for Russia’s growth).

Russia’s economy grew 0.6% in the third quarter from the previous three months, but GDP was 9.4% lower than last year’s levels, writes Nataliya Vasilyeva for BusinessWeek. The Economic Development Ministry stated that the improvements were attributed to less capital outflow and to companies replenishing stocks.

Manufacturing and agriculture have been the main industry drivers, with agricultural activity increasing by 10% and industrial production increasing by 5.1%. Retail sales diminished 9.9% on the year in September. (Four things going for Russia).

The downturn hit Russia hard for three primary  reasons, Bush at Forbes says. These are reasons to use caution when investing in Russia and to have an exit strategy in place. (How to follow trends).:

• One reason is oil prices – they plummeted, and Russia plummeted along with it. They recovered somewhat, and so did Russia.

• Another reason is their companies’ idiosyncrasies, which include holding copious stocks of inventory and engaging in cost-plus accounting, which means companies initially resist price cuts by reducing wages. These two reasons helped explain why Russia’s output plummeted early in the downturn. (Ways to play oil and Russia).

• Furthermore, Russia’s financial sector is still struggling and bad loans are expected to reach 20% by the end of the year.

For more information on Russia, visit our Russia category.

• Market Vectors Russia ETF (NYSEArca: RSX): up 119.9% year-to-date

• iShares Emerging Markets Eastern Europe Index Fund (NYSEArca: ESR): down 8.4% in the last week, recently launched; Russia is 75%

• SPDR S&P Emerging Europe (NYSEArca: GUR): up 68.5% year-to-date ; Russia is 65%

• Dow Jones Emerging Markets Energy Titans (NYSE: EEO): up 5.9% in the last three months; Russia is 36.3%

Max Chen contributed to this article.

The new iShares Emerging Markets Eastern Europe Index Fund (NYSEArca: ESR) has the following breakdown:

• Country weightings include: Russia 75%, Poland 13%, Czech Republic 6.4%, Hungary 6.1%.
• Sector allocation include: Energy 52%, Financials 16%, Materials 11%, Telecom 10%.

The fund’s largest allocations are in energy and Russia, with its two major holdings in Russia’s Gazprom, at 25%, and Lukoil, at 10%. Potential investors should be aware of higher risks, yet possible higher profits, involved with a fund that has a high percentage in any single company, writes Roger Nusbaum for TheStreet. The fund has an expense ratio of 0.72%. (More on Eastern Europe’s economy).

An alternative to iShares’s  new ETF is the SPDR S&P Emerging Europe (NYSEArca: GUR), which is currently up 88.4% year-to-date. GUR has an expense ratio of 0.59%.

• Country weightings include: Russia 65%, Turkey 14.8%, Poland 10.4%, Hungary 5.1%, Czech Republic 4.2%, U.S. 0.5%
• Sector allocation include: Energy 45.3%, Financials 22.9%, Materials 10.7%, Telecom Services 9.2%, Consumer Discretionary 3.4%, Industrials 3.0%, Utilities 2.7%, Health Care 1.2%, Consumer Staples 0.9%, Miscellaneous 0.4%, Info. Tech. 0.4%

New ETF provider Emerging Global Shares also has the Dow Jones Emerging Markets Energy Titans (NYSE: EEO):

• Country weightings include: Russia 36.3%, India 18.9%, China Offshore 16.3%, Brazil 9.5%, South Africa 6.8%, Thailand 4.2%, Chile 2.5%, Colombia 1.9%, Poland 1.6%, Hungary 0.9%.

Which ETF do you choose? It depends on the allocation you’re seeking and how much exposure to energy you’re seeking. GUR has a more even distribution among various sectors, but if you’d like a heavier weighting in energy, EEO and ESR may be worth some investigation, too. Be mindful, too, that some of these funds have heavy allocations to a single stock, which may increase volatility. (Four things going for Russia).

For more information on Eastern Europe, visit our Eastern Europe category.

Max Chen contributed to this article.

The International Monetary Fund (IMF) does not believe the emerging market economies in Eastern Europe will recover in the second half of 2009, according to The New York Times. Eastern Europe will miss out on a stronger rebound because of cross-border capital flows.

In the IMF report, the forecast for Emerging Eastern Europe GDP growth is 1.8% as a whole in 2010 after a 5.2% drop in 2009. Individually, the Baltics, Hungary and Bulgaria may see a milder recession while Poland and Turkey could see sizable gains. (Visit our emerging Europe category for more stories on these economies).

The area’s banking system is still troubled and outside countries have warned Eastern European Central Banks and governments to not rush withdrawing stimulus measures. The unemployment rate is also another major headache, with the IMF predicting a rise to 11.7% next year for the euro zone.

The SPDR S&P Emerging Europe (NYSEArca: GUR) has its heaviest allocation to the energy sector, with 44% of the weighting. Financials make up a smaller slice, with 22.5%, which should buffer the impact of any financial turmoil that emerges in the region. It’s also got heavy exposure to countries that are predicted to do well in the coming year. (Read more about Poland and Russia here).

• SPDR S&P Emerging Europe (NYSEArca: GUR): up 63.9% year-to-date; Russia is 63.1%; Turkey is 15.1% and Poland is 11.1%.

For more information on emerging European countries, visit our emerging Europe category.

Max Chen contributed to this article.

Frontier markets are not stable enough to be named “emerging,” but these markets do have more potential to deliver higher returns to compensate for the greater risk, remarks Will McClatchy ETFZone. Frontier markets are defined as suffering from extreme volatility, poor trading, corruption, dismal accounting and a tendency to expropriate foreign capital.

What’s so appealing about frontier investments? First, the fastest-growing countries are currently the ones that are “economically delayed.” Second, risk in frontier markets is greatly reduced when added in small amounts to a portfolio.

Some frontier market regions to consider include:

• Africa is a prime example of a frontier market. During the financial debacle, Africa did not suffer as much from the credit crunch since it was lightly leveraged. The continent also has a great amount of natural resources.
• States of the Persian Gulf and Middle East hare developing into emerging status. The oil-rich states are raking in the benefits of increasing wealth, transparency and infrastructure development.
• Eastern Europe, former Soviet satellite states and Asian countries do have some ready supply of natural resources, but some regions are corrupt and home to organized crime.
• Smaller Latin American countries like Bolivia, Ecuador and Peru are sometimes categorized as “frontier.” However, most Latin American ETFs are more weighted toward advanced economies, and single-country ETFs don’t cover all the nations.

A few of the frontier market ETFs out there include:

• Claymore/BNY Mellon Frontier Markets ETF (NYSEArca: FRN): up 42.7% year-to-date; expense ratio is 0.65%; country samplings include: Egypt, Colombia, Kazakhstan, Chile and Poland

• Market Vectors Gulf States ETF (NYSEArca: MES): up 18.2% year-to-date; expense ratio is 0.98%

• SPDR S&P Emerging Europe (NYSEArca: GUR): up 58.3% year-to-date; expense ratio is 0.6%; note that GUR has a high allocation to Russia

• Market Vectors Africa ETF (NYSEArca: AFK): up 32.2% year-to-date; expense ratio is 0.83%; country samplings include: South Africa, Nigeria, Morocco and Egypt

Fore more information on frontier markets, visit our frontier markets category.

Max Chen contributed to this article.

The Polish economy stepped lightly throughout the global recession because its economy was not as heavily invested in exports compared to its other European counterparts, remarks Carter Dougherty for The New York Times. As a result, the emerging economy has seen a few positive developments:

• Poland’s GDP increased by 1.1% in the second quarter by the same period year-over-year, a result well above the expected 0.5% growth, writes Polya Lesova for MarketWatch.
• The Polish zloty jumped 1% against the euro and 1.1% against the dollar on the good economic report.
• The Danske Bank expects the economy to grow between 1.0% and 1.5% for 2009.
• The Polish Central Bank kept interest rates at 3.5%, citing increase in retail sales and rise in economic sentiment as indicators signaling an improvement in the economy.
• Poland’s labor market remains strengthened by foreign investment. Many big-name global manufacturers are setting up shop in Poland, which has helped bolster the employment rate.

On the flip side, Ryszard Petru, chief economist at BRE Bank in Warsaw, estimates unemployment will hit 9.9% by the end of 2009, up from 7.1%. The Central Bank also warns that reduced lending, more notably to the corporate sector, may diminish overall economic growth.

While there currently isn’t a Poland single-country ETF, there are a selection of emerging market/frontier market ETFs that do have Poland as a large component. These types of region-specific ETFs also have the added benefit of spreading risk between the economic outcomes of countries included in the ETFs.

• Claymore/BNY Mellon Frontier Markets (FRN): up 35.6% year-to-date; Poland is 15.1%

• SPDR S&P Emerging Europe (GUR): up 46.6% year-to-date; Poland is 12.2%

For more information on emerging markets, visit our emerging market category.

Max Chen contributed to this article.

The IMF, European Union and Central Banks all helped in reducing Central and Eastern Europe’s liquidity issues, which stymied multiple national bankruptcy, cross-border banking collapse and region-wide contagion, writes Michael Winfrey for Reuters.

Investors are beginning to peruse the various countries, looking for new positions to take advantage on potentially good performers. However, there are still some risks:

• Latvia, Romania and Hungary are still discussing the finer details of their billion-euro rescue packages
• States that avoided bailouts are dealing with over-sized deficits, which could result in spending cuts and diminish future growth
• Unemployment can continue to rise for another year or more
• A fourth-quarter selloff in the U.S. stock markets could create another round of flight from risk around the globe

Many believe prospects for economic growth in emerging markets are better than those in the United States, but an investor should be aware that economic situations vary from country to country, remarks Sam Subramanian for iStockAnalyst.

A good way to hedge these risks is with an ETF that offers broad exposure to a range of countries. Instead of betting on individual countries, ETFs can help spread out the exposure a little more and reduce volatility and risk. Watch the trend lines in order to spot opportunities.

• SPDR S&P Emerging Europe (GUR): up 46.3% year-to-date

For more information on Emerging European countries, visit our Emerging Europe category.

Max Chen contributed to this article.

Some currencies in Eastern Europe are trading at new highs for this year, and the cost of insuring against sovereign-bond defaults has dropped as confidence about the global economy continues to grow. More and more investors seem willing to take on riskier assets.

On the flip side is lingering uncertainty about where the global economy is going, say Katie MArtin and Clare Connaghan for The Wall Street Journal. If it turns sharply negative, investors could lose their risk appetite and head for the exits.

Now that emerging Europe has departed from full-on crisis mode, the International Monetary Fund (IMF) is handing down more stringent requirements for monetary lending. The result would be a range of different deals in which the most needy countries will have to get their public deficits under control in order to receive funds. Michael Winfrey for Reuters reports that these measures are being taken because the immediate threat of regional collapse has faded and now the IMF can spend its time focusing on the unique issues of various countries.

• SPDR S&P Emerging Europe (GUR): up 35.4% year-to-date

For more stories about emerging Europe, visit our emerging markets category.

Commodities have been enjoying a recent run-up that has many consumers fearing a repeat of summer 2008. In the last three months, PowerShares DB Base Metals (DBB) gained 10%, United States Oil (USO) rose 14% and United States Gasoline (UGA) jumped 23.8%.

What we saw was a number of uptrends in this area in which many of these types of funds crossed or were approaching their long-term trend lines. But if recent news is any indication, the trend may be petering out. If it is winding down, you can protect yourself and any gains you might have made in the run-up by watching the trend lines. When a fund drops below its 200-day or 8% off the recent high (whichever comes first), sell it.

Having an entry and exit strategy, particularly when it comes to volatile areas of the market, can help guide you as to when to buy and when to sell. More importantly, it can help you remove your emotions and make decisions based on the market’s messages.

Meanwhile, The Economist lays out the ups and downs in food prices based upon inflation in two timeframes: the past three months and the year through February 2009. The evidence is emerging that the cost of food from country to country is affecting some countries more than others.

Despite a big fall from peaks in 2008, food-price inflation remains high in places such as Kenya and Russia, while China has experienced a drop in high commodity prices that is passed along to the consumer.

Both the United States and France are experiencing the same pattern as China, while Kenya, Russia and Pakistan are getting hit hard by inflation of commodity prices.

High food costs could impact agriculture ETFs as demand in certain countries and the adoption of a Western diet keeps costs at high levels.

• PowerShares DB Agriculture (DBA): down 2% year-to-date

• SPDR S&P Emerging Europe (GUR): up 20.7% year-to-date

For more stories on agriculture, visit our agriculture category.

Evidently, lower interest rates in western Europe may feed through to increased demand for exports from eastern Europe while stimulus efforts in individual eastern countries will further help economic growth. The recovery stats are in place, but the economy does have a way to go before growth will take over.

Meanwhile, global economic growth is projected to fall 1.3% this year, the first negative global growth in the post-war period. Global trade is likely to contract 11%, reports D. Srul Ajoo for Bernama. Asia may be looking at a better turnaround thanks to limited exposure to toxic assets. But Europe’s vulnerability came from exposure to toxic assets from the United States’  rapid credit growth as well as large current account deficits in emerging Europe.

• SPDR S&P Emerging Europe (GUR): up 33.7% year-to-date

In Harvard’s top U.S.-listed holdings for the end of the first quarter, the most copious amount of U.S.-listed equity holding by a wide margin was in iShares MSCI Emerging Markets Index (EEM), writes Carl T. Delfeld for Seeking Alpha.

• iShares MSCI Emerging Markets Index (EEM): up 27.2% year-to-date

This has been a growing trend, with more investment interest in individual emerging markets. Harvard isn’t stopping with just EEM, either. The endowment is also increasing its allocation to funds focused on China, Brazil, India, Mexico and South Africa.

Why are emerging markets so attractive these days? The sentiment toward them has been lifting gradually lately, reports Nick Godt for MarketWatch. Yesterday’s performance in India only furthered the good feelings toward those markets. Some caution that the rally might be overdone, so be sure to watch the trend lines for hints.

A potential trader may look at the whole of the emerging markets through ETFs such as EEM, or one may pick out individual countries to satiate one’s investment pangs.

Current emerging markets above their trend lines include:

• SPDR S&P China (GXC): up 27.3% year-to-date

• iShares MSCI Taiwan Index (EWT): up 40.1% year-to-date

• iShares MSCI Singapore Index (EWS): up 24.3% year-to-date

• SPDR S&P Emerging Europe (GUR): up 29.9% year-to-date

• iShares MSCI Mexico Investable Mkt Idx (EWW): up 12.6% year-to-date

• Market Vectors Russia (RSX): up 59.3% year-to-date

For full disclosure, some of Tom Lydon’s clients own shares of GXC.

Max Chen contributed to this article.