Developing countries and emerging market exchange traded funds have experienced high inflows and delivered a strong performance in recent weeks, but investors should still pick their spots as the various economies can exhibit uneven growth.
A number of factors helped support the emerging market play, including signs of stabilization in China, leveling of commodity prices and a depreciating U.S. dollar, according to a BlackRock research note. Moreover, investors may have been looking for alternatives as developed markets exhibited greater volatility.
The Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), the two largest emerging market ETFs by assets,up 18.2% and 17.7% year-to-date, respectively.
As more investors look to the emerging markets, people should be aware that the various economies will produce varying levels of growth.
“Although we see further potential upside, not all EMs offer attractive outlooks, and therefore selectivity remains our approach to emerging market equities,” BlackRock said. “We favor countries that are committed to structural reforms as well as those that are better positioned to benefit from the current environment such as India and ASEAN countries.”[related_stories]
BlackRock is currently overweight India, arguing that while the market is not cheap, it is not expensive either, with valuations hovering near historical levels.
“A combination of economic improvement, potentially stronger earnings and progress on reform makes us favorable to the country,” BlackRock said.
Investors can access these areas through targeted ETF options. For instance, the WisdomTree India Earnings Fund (NYSEArca: EPI), PowerShares India Portfolio (NYSEArca: PIN) and iShares India 50 ETF (NasdaqGM: INDY) provide broad India exposure.
ETF investors can also look at ASEAN or emerging Southeast Asia options through the Global X FTSE ASEAN 40 ETF (NYSEArca: ASEA). ASEA leans toward southeast Asian economies, including Singapore 32.1%, Malaysia 25.5%, Indonesia 19.8%, Thailand 14.7% and Philippines 7.9%.
Among the notable stand outs in the Southeast Asia, the iShares MSCI Philippines ETF (NYSEArca: EPHE) is higher by nearly 19% year-to-date, giving it a decent advantage over the MSCI Emerging Markets Index, but EPHE has been somewhat overlooked this year compared to other high-flying emerging markets single-country exchange traded funds.
For more information on the developing economies, visit our emerging markets category.