Resource-rich emerging markets, along with country-related exchange traded funds, are benefiting from the rally in commodities as the Russia-Ukraine war and sanctions weigh on the supply outlook for many major raw resources.
For instance, oil exporters like Saudi Arabia, Angola, Uruguay, and Qatar have strengthened.
“This should be a good environment for Gulf energy exporters,” Anthony Simond, a money manager at abrdn, told Bloomberg. “Fiscal and trade balances are going to look much better with oil above $100, and Covid risks are probably limited given relatively high vaccine coverage.”
Investors can also look to targeted Middle East plays through country-specific ETFs like the iShares MSCI Saudi Arabia Capped ETF (NYSEArca: KSA) and the iShares MSCI Qatar Capped ETF (NasdaqGM: QAT).
“The indirect impact of higher commodity prices would bring volatility but no broad emerging-market weakness,” Leonardo Pellandini, an equity strategist at Julius Baer, told Bloomberg. “Major exporters can be boosted. Price increases, especially in agricultural goods, are a manageable hit for emerging markets and can be offset by a stronger trade balance.”
Pellandini also highlighted the outperformance in resource-rich Latin American countries including Brazil, Colombia, and Chile.
ETF investors can target these Latin American economies through ETFs like the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), the Global X FTSE Colombia 20 ETF (NYSEArca: GXG), and the iShares MSCI Chile ETF (NYSEArca: ECH).
Lombard Odier and Barclays Plc. also highlighted Asia as a big winner due to its relative distance from the conflict. Specifically, India and Indonesia are areas that could attract fund flows diverted away from Russia, according to Avanti Save, Asia credit analyst at Barclays.
“By moving to Asia, investors will have to give up some spread and yield but arguably it is better than undertaking high default risk in other parts of emerging markets,” Dhiraj Bajaj, head of Asia credit at Lombard Odier, told Bloomberg. “We see India and Middle East corporates as a key beneficiary, followed by South East Asia.”
ETF investors can also target India and Indonesia with strategies like the iShares MSCI India ETF (CBOE: INDA), the WisdomTree India Earnings ETF (NYSE: EPI), the iShares MSCI Indonesia ETF (NYSEArca: EIDO), and the VanEck Vectors Indonesia Index ETF (NYSEArca: IDX).
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