Developing markets took the brunt of the global selling pressure, but the weakness may have open opportunities for bargain hunters as some of the cheapest exchange traded funds track the emerging markets.
For instance, the Market Vectors Russia ETF (NYSEArca: RSX) shows a 6.99 price-to-earnings ratio and SPDR S&P Russia ETF (NYSEArca: RBL) is trading at a 6.04 P/E, according to Morningstar data. Russia is heavily exposed to oil prices, which has dragged on Russian equities, but if an investor believes energy prices could rebound, the emerging market could stage a decent rally.
Nigeria, another developing economy tied to oil, has also been weakening along with the fall in the commodities market. The selling has also dragged on valuations, with the Global X Nigeria Index ETF (NYSArca: NGE) showing a 6.85 P/E.
Investors may also find a bargain in Pakistan’s market through the Global X MSCI Pakistan ETF (NYSEArca: PAK), which has a 8.07 P/E.
Investors who are wary of putting all their eggs in a single basket may also turn to broader emerging market plays that are also trading at relatively cheap valuations.
For instance, the Schwab Fundamental Emerging Markets Large Company ETF (FNDE) has a 8.46 P/E, Global X SuperDividend Emerging Markets ETF (NYSEArca: SDEM) trades at a 8.09 P/E and First Trust Emerging markets Small Cap AlphaDEX Fund (NYSEArca: FEMS) shows a 8.93 P/E. In contrast, the S&P 500 is trading at around a 18.5 P/E.
These three broad emerging market ETFs may also look cheaper due to their alternative or smart-beta indexing methodologies that tilt toward value stocks.
Specifically, FNDE tracks the Russell Fundamental Emerging Markets large Company Index, which selects, ranks and weights components based on fundamental factors like adjusted sales, retained operating cash flow and dividends plus buybacks, as opposed to the traditional market capitalization-weighted methodology.
SDEM targets high dividend yielding equity securities in the emerging markets and equally weights the components.
FEMS tracks a group of small-cap emerging market stocks and selects components based on growth factors including 3-, 6- and 12-month price appreciation, sales to price and one year sales growth, along with book value to price, cash flow to price and return on assets.
Max Chen contributed to this article.