The Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) are the two largest emerging markets. One reason for the success of these funds is that while many investors want exposure to the developing world, they do not want to manage the country risk that comes along with owning a country-specific fund.

Not all diversified emerging markets ETFs are created equal. Some slice and dice the developing world into more focused investment themes, a concept that works when emerging markets investing itself is working. The other side of the coin is that narrowly-focused, multi-country funds are vulnerable to global and regional shocks. That has recently been the case with the Global X FTSE ASEAN 40 ETF (NYSEArca: ASEA).

The Global X FTSE ASEAN 40 ETF is not a pure emerging markets ETF as AAA-rated Singapore, classified as a developed market, is 36.7% of the fund’s country weight. That is problematic enough for ASEA because Singaporean stocks and the ETFs that track them have been developed market laggards this year. [Singapore ETF: 2nd-Half Rebound or Stuck in the Mud?]

The Philippines accounts for 3.5% of ASEA’s weight, but that is not enough to be a primary driver of the fund’s performance. The real thorns in ASEA’s side have been Malaysia, Indonesia and Thailand, a trio that combines for 61% of the fund’s weight. ASEA is down is 15.5% in the past 90 days and those countries explain why. [http://www.etftrends.com/2013/07/emerging-market-etfs-low-hanging-fruit-or-falling-knives/]

Of the major ETFs offering exposure to those countries, the iShares MSCI Malaysia ETF (NYSEArca: EWM) is the best performer over the past three months with a loss of 11.8%. The comparable Indonesia and Thailand ETFs have slipped into bear markets with plunges of 32.2% and 24.6%, respectively. [Indonesia ETFs no Emerging Markets Refuge]

Thailand has posted two consecutive quarters of contracting GDP growth, the definition of recession. Indonesia, Southeast Asia’s largest economy, is beset by a plunging currency, but making matters worse is the perception by foreign investors that the central bank there is not doing enough to stem the rupiah’s slide.

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