These days, plenty of emerging markets are considered inexpensive when examining traditional valuation metrics such as price-to-earnings and price-to-book ratios. Investors have a plethora of options for accessing several deeply discounted emerging markets through just one ETF and one of the more regionally-focused funds with a compelling valuation is the SPDR S&P Emerging Europe ETF (NYSEArca: GUR).
With about $80 million in assets under management, GUR is dwarfed in size by other diversified emerging markets funds, but for the investor that wants to access developing world stocks on the cheap, GUR merits consideration. Not only is GUR trading at noticeable discounts compared to larger emerging markets funds such as the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), GUR has been soaring in recent weeks. [Time for the Emerging Europe ETF]
In the past 90 days, GUR has jumped almost 15% and in the past month, the ETF has gained over 9%. That could be a sign investors are finally warming to low valuations on developing world equities, something they passed on earlier this year. Russia, a market that is often trades at a discount to the MSCI Emerging Markets Index, is 57.4% of GUR’s weight. Poland, a steady performer even in a volatile year for emerging markets, is another 15.3% of GUR’s geographic exposure. [Zloty Helps Poland ETFs Stand Strong]
Turkey, which has been decimated by a sagging currency and political volatility, is GUR’s second-largest country weight at 19.7%. While Turkish stocks have turned in dismal performances on a year-to-date basis, the iShares MSCI Turkey Investable Market ETF (NYSEArca: TUR) has sprung to life in recent weeks and some analysts are feeling a tad more bullish on the market.
“Our four-factor econometric regression model for Turkey is suggesting 7% upside potential by year end; (ix) Turkey trades at a discount once again versus GEM on sector-adjusted forward earnings and Turkish banks are cheap versus EMEA peers; and (x) there is now 13% potential upside for Turkish stocks to Credit Suisse target prices,” according to a Credit Suisse note posted by Barron’s.
Russia, Turkey and Poland are three of the four lowest P/E emerging markets at the moment. The P/E ratios for those market are 4.6, 9.1 and 11.5, respectively, compared to 11.3 for the MSCI Emerging Markets Index, according to WisdomTree. Not only are those markets cheap compared to a broader emerging markets index, they are deeply discounted by their own historical standards. Russia, Turkey and Poland currently trade at an average of almost 28% percent to their 10-year averages, the WisdomTree data show.
Additionally, GUR has a familiar sector composition for an emerging markets fund. Meaning energy and financials loom larger, as in those two sectors combine for over 61% of the ETF’s weight. Energy and financial services stocks in the MSCI Emerging Markets Index currently traded at discounts of 24.5% and 31.7% to their 10-year averages, as WisdomTree points out, proving that GUR really does offer investors access to Emerging Europe on the cheap.
iShares MSCI Turkey Investable Market ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of EEM.