Many emerging markets have witnessed rapid growth and drawn much investor attention over the past few years. In fact, some may say that markets such as China and India have largely “emerged.” So which emerging markets are truly emerging?
On the Fence About Egypt
The Egyptian riots are still front-page news, and many investors have fretted over how this would affect global markets. I have to say that events there have been quite interesting to watch, as the inevitable fall of Mubarak has the potential to bring many changes in that part of the world. And considering that the protests have continued for more than a week, it’s no surprise that international equity markets have been somewhat rattled. It’s hard for investors to escape the flurry of non-stop news reports and pundit discussions about Egypt’s future governance and the impact a new government is going to have on the Middle East and the rest of the world.
The 20% sell-off and subsequent 10% spike higher in the Market Vectors Egypt ETF (NYSE: EGPT) — the only U.S.-listed Egypt-only ETF — may be difficult to stomach, and the volatility there is likely to remain high as the situation on the ground is still fluid. Currently, the situation in Egypt is too chaotic to assess properly with regards to equities tied to the country, though there may be a buying opportunity here in the near future.
For now, the Egyptian situation is impacting other regional funds, and I’m seeing some interesting opportunities in three specific emerging market exchange traded funds.
Emerging Market #1 – Africa
The Egyptian turmoil caused a sell-off in another ETF that holds great promise — the Market Vectors Africa Index ETF (NYSE: AFK). Egyptian companies comprise 20.5% of that ETF, the second-heaviest weighting after South Africa (28.9%). Other well-represented countries are Nigeria at 16.5% and Morocco at 1.1%. The best thing about this ETF is that it offers access to companies and markets in Africa that otherwise will be very difficult to reach for individual investors.
Most African markets — save for Egypt and South Africa — are referred to as frontier markets. Frontier is a term that signifies an earlier level of development than most emerging markets.
The best way to play Africa for many years was via South African companies as they dominate the region, have the best funding and are domiciled in the most advanced economy in the continent. But a more direct play would be this AFK ETF, which is similar to investing in an African Index fund.
Considering that GDP per capita is very low in most African countries and is growing rapidly from a small base, I expect that this ETF will do well over time.