Emerging market exchange traded funds (ETFs) are always a tantalizing investment option. They hold the potential for great growth, but at the same time, increase portfolio risk. As the global economy continues to morph into unchartered grounds, emerging market ETFs will become even more intriguing.
According to Citigroup, “Developing-nation shares will rally 20% to 25% by the end of this year as the world economy avoids a double-dip recession and attractive valuations lure investors.”
Developing economies are riskier than most, to be sure. Floyd Norris at The New York Times says an investor can take a look at the health of a country’s private sector in order to gauge how healthy the country itself is. (This goes for developed economies, too, though). [How to Choose and Trade an ETF.]
Gary Gordon of ETF Expert lists ETFs that you can purchase for many of the developing nations, some of which are well above their 200-day moving averages. You can use the ETF Analyzer to find emerging market ETFs that are above their trend lines: [China ETFs: Why They’re Not Running Scared.]
- Market Vectors Indonesia (NYSEArca: IDX)
- iShares MSCI Thailand (NYSEArca: THD)
- Global X FTSE Colombia 20 (NYSEArca: GXG)
We use the 200-day to spot opportunities in various sectors and asset classes. There are many emerging market ETFs that are struggling right now, but there are opportunities out there, too. [6 ETF Plays For the Brazilian Economy.]
If you feel a bit more adventurous, you might be attracted to frontier markets, which are a step behind emerging markets.
According to Walter Hamilton of The Los Angeles Times, “A frontier market typically is rich in resources with a consumer class that is just now emerging and a core of promising companies whose efficiency is being sharpened by a fierce global marketplace.”
However, the risks are many, and sometimes the added risk may not be justified. Just take a look at the performance of the MSCI Frontier Markets Index compared to that of the MSCI Emerging Markets Index: 39% to 88% since February 2009.
But emerging market economies were once frontier market economies, so the allure remains.
For more stories on emerging markets, visit our emerging markets category.
Sumin Kim contributed to this article.