The declines suffered by equity-based emerging markets exchange traded funds is attributable to declining market values for the companies that comprise those ETFs.
Sounds simple enough, but the result of all that lost market value by the likes of Chinese banks, Petrobras (NYSE: PBR), Samsung and others is that few emerging markets firms now rank among the world’s largest economies. To be precise, just one company based in a developing nation, PetroChina (NYSE: PTR), currently ranks among the 20 largest companies in the world, according to Bloomberg.
The dwindling status of emerging markets giants has predictably played a heavy hand in prompting investors to pull billions of dollars from ETFs like the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM). [EM ETFs Get a Lift, But Outflows Linger]
The decline of emerging markets companies from list of the world’s largest firms is staggering. At the end of March 2013, five emerging firms were found on a PwC list of global companies ranked by market value. Four of those companies – Samsung, China Mobile (NYSE: CHL), Industrial and Commercial Bank of China and China Construction Bank – are currently top-10 holdings in EEM.
PetroChina, China Mobile and those two banks combine for over 27% of the iShares China Large-Cap ETF’s (NYSEArca: FXI) weight. EEM and FXI are not the only ETF suffering at the hands of massive market cap erosion by constituent firms. The iShares MSCI South Korea Capped ETF (NYSEArca: EWY), which allocates 20.6% of its weight to Samsung, is off 2.3% this year. [South Korea ETFs Betray Low Beta Reputation]
At the end of March 2013, Petrobras, Brazil’s state-run oil company, had a market value of $113 billion. That is down to $74 billion Tuesday. Said another way, Petrobras is barely worth more than $70 billion in shares it sold in 2010 in what is still the largest stock offering on record.
The seemingly never-ending slide in shares of Petrobras has hampered the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ). So has Itau Unibanco’s (NYSE: ITUB). The PwC list shows the Brazilian bank had a market value of $82 billion in March 2013 and $54 billion in March 2008. Today, that number is just over $33 billion. Itau and Petrobras combine for about 18% of EWZ’s weight, according to iShares data.
Since November 2007, Russian energy giant Gazprom “shrunk to less than $100 billion, while PetroChina lost almost 80 percent of its market value,” Bloomberg reported. Gazprom is the largest holding in the Market Vectors Russia ETF (NYSEArca: RSX), accounting for 8.6% of the largest Russia ETF’s weight.
iShares MSCI South Korea Capped ETF
