More people are looking into international markets to enhance or diversify their portfolios, but not all economies are the same. Investors, though, can better control their global exposure through country-specific ETFs.
“The benign global economic backdrop has elevated the importance of country risks for investors, driving down inter-country correlations and increasing potential opportunities. Country differentiation will matter in 2018, as each country faces a unique set of risks. Naturally, investing in only some of these countries may be worth the risks,” Christopher Dhanraj, Director and Head of ETF Investment Strategy at BlackRock, said in a research note.
Specifically, BlackRock favors countries like Japan, Brazil, China, India and Indonesia on the global stage.
In Japan, Abenomics under Prime Minister’ Shinzo Abe continues to support the economy. The Bank of Japan is also committed to fuel inflation after the developed Asian economy suffered through decades of deflationary pressures. To access Japanese markets, investors may look at something like the iShares MSCI Japan ETF (NYSEArca: EWJ).
China is on a path toward an ambitious reform agenda focusing on the quality of growth instead of relying on quantity, including environmental protection, continued cuts to excess capacity and reducing excessive credit growth. For China exposure, the iShares China Large-Cap ETF (NYSEArca: FXI) is the largest option available.
Brazil is undergoing massive reforms, including a 20-year constitutional spending cap tied to inflation, which has helped bring the economy out of a deep recession and strengthened investment confidence. The country now is working on passing pension reforms. Meanwhile, the Brazilian market is enjoying an acceleration in earnings growth. The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) provides exposure to some of the biggest companies in the Brazilian equities market.
Lastly, India and Indonesia both reveal improving domestic growth that is powered by reforms. In India, the bank recapitalization efforts could ease credit conditions and bolster the weak banking segment’s balance sheets. In Indonesia, subsidy cuts have lifted government revenues, which has contributed to a 120% annual increase in social payments to lower income households. The iShares India 50 ETF (NASDAQ: INDY) and iShares MSCI Indonesia ETF (NYSEArca:EIDO) provides targeted country exposure to India and Indonesia, respectively.
For more information on the international markets, visit our global ETFs category.