In recent years, investors began to notice the price-to-earnings discounts of emerging markets relative to developed world alternatives and also lowered their expectations for economic growth. Eventually, braver souls dangled a few toes into the Amazon River.
Technical analysis concerns notwithstanding, iShares MSCI Brazil Index ETF (EWZ) has broken out of a multi-year bearish downtrend. EWZ forfeited more than 50% in value between October 2011 and Q1 2014.
Emerging-market ETFs like EWZ haven’t received this kind of love in seven years. What’s more, you can own EWZ for roughly 33% less than what an advocate might have paid for it near the tail end of 2011. I am not suggesting that you chase the rally; you will need to forge your own conclusions. Nevertheless, EWZ offers reasonable reward for the risk.
Is the upswing for EWZ the only one that is worthy of investigation? Hardly.
You might be intrigued by the prospect of owning a basket of Chinese companies for less than what one paid for SPDR S&P China ETF (GXC) nearly four years ago. Maybe you would prefer a piece of India via WisdomTree India Earnings Fund ETF (EPI) at a 15% discount off of 2011 prices.
Note the similarity between India’s breakout and Brazil’s breakout. Both fell 50%-plus from respective 2011 highs. While, EPI bottomed out in the second half of 2013 whereas EWZ bottomed out in the first few months of 2014, each is roughly 20% above its respective long-term trendline. Overbought? Sure. Yet, the extent of the demand is greater than at other moments in the past four years. Whether you wait for a cooling off period or nibble this afternoon, the move may help you shift away from relying too heavily on U.S. stock ETFs.
Keep in mind, the economic data on emergers is quite favorable. In China alone, wages have been growing at a double-digit annual percentage (13.8%) for a decade, increasing the purchasing power of middle-class consumers there. Wage growth in the U.S.? Stagnant. In fact, some estimate that the number of middle-class consumers in emerging markets will surpass the number in the U.S. and Europe combined by 2020.
Still not convinced? Then consider the total return percentages in the table below:
U.S. equities have been the clear leader since the eurozone crisis in 2011. Yet, a seismic shift that favors emerging markets may be in the works, and unlike the QE-inspired success for U.S. ETFs, the exuberance for emerging-market ETFs is far more rational.
Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc., and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationship.