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3 Southeast Asian Country ETFs Surging In October

The economic slowdown in China may be appalling for the Southeast Asian economies, but there is a flip side to it that actually spells opportunity. Years ago, leading manufacturing companies across the world had turned to China as a production base in order to take advantage of low-cost facilities and inexpensive labor. However, the trend seems to be changing at a fast pace due to the economic turmoil in the world’s second largest economy (read: Asia-Pacific ETFs to Watch on a Surprise Rebound ). Due to the massive growth that China has experienced in the past, its wages and manufacturing costs have grown sharply. Further, the country’s huge population base and rising disposable income of middle class have slowly turned the economy from production-based to consumer-based. It is for these reasons that international companies are becoming more inclined toward taking their labor-intensive manufacturing projects to Southeast Asian nations due to lower labor costs and their ability to handle sophisticated production on a large scale. With this, the companies will be able to cater to an increasing consumer base in China as well as to conventional markets such as Europe and the U.S. The industrial relocation is expected to result in huge foreign direct investment (“FDI”) inflow into these emerging economies. Asian Development Bank expects Southeast Asia to record a GDP growth of 4.6% in 2015 and 5.1% in 2016. This compares with a GDP growth of 2.7% in 2015 and 2.8% in 2016 for the U.S., and 1.5% in 2015 and 1.8% in 2016 for the Eurozone, per forecast of World Bank . Based on these strong economic fundamentals and recent developments, we turn our focus to three Southeast Asian country ETFs that have experienced double-digit gains since the beginning of this month (read: 4 Safe Ways to Invest in Emerging Market ETFs ). iShares MSCI Indonesia ETF (NYSEARCA: EIDO ) Indonesia is struggling with weakening demand from China and low prices of commodities such as palm oil and coal. However, a set of stimulus packages announced by its President Joko Widodo recently is expected to spur growth in this largest Southeast Asian economy. The stimulus measures range from cutting energy prices for companies and giving insurance to farmers against crop failures to giving access to subsidized loans to salaried workers for small business enterprises. Before this, the government has already tried to revive the economy by easing permit processing and stabilizing a weak rupiah. The government aims to achieve a GDP growth of 7% in 2017 through enhanced infrastructure spending and accelerated FDI inflow compared to its six-year low GDP growth of 4.7% for the first quarter of the year. EIDO tracks the MSCI Indonesia Investable Market Index, measuring the performance of Indonesian-listed equity securities in the top 99% by market capitalization. The fund is heavily biased towards financials, accounting for nearly 40% of its assets. It has gathered about $298 million in assets and trades in an average volume of 687,000 shares. The ETF charges 62 bps in investor fees per year and was up more than 25% since the beginning of this month (till October 13, 2015). It carries a Zacks ETF Rank #3 (Hold) with a High risk outlook. Notably, two other Indonesian ETFs also recorded double-digit gains (more than 20%) in the same time frame. They include the Market Vectors Indonesia Index ETF (NYSEARCA: IDX ) and the Market Vectors Indonesia Small Cap ETF (NYSEARCA: IDXJ ) . iShares MSCI Malaysia ETF (NYSEARCA: EWM ) Malaysia is another Southeast Asian economy falling prey to the commodity rout and slowdown in China (its largest trading partner). However, the recent trading data from the country spurred investors’ interest. According to data released by the Ministry of International Trade and Industry, the country’s trade surplus increased to 10.2 billion ringgit ($2.4 billion) in August from 2.4 billion ringgit ($0.6 billion) a month earlier. Exports rose 4.1% year over year while imports fell 6.1% from the year-ago level. Despite the China slowdown, exports to the country soared 32.4% year over year. Meanwhile, exports to the U.S. and the European Union escalated 12% and 13.5% year over year, respectively. The surge in exports can be attributed to its weakening currency. According to Datuk Seri Abdul Wahid Omar , Minister in the Prime Minister’s Department, Malaysia has compensated the loss in oil and gas revenues from the slumping crude oil prices to some extent by implementing the Good and Services Tax in April. Further, its debt level (currently 54% of GDP) is expected to decline given the rising investments from the private sector. EWM follows the MSCI Malaysia Index, which is highly focused on the country’s financials, industrials and consumer staples sectors. The fund has garnered roughly $320 million in assets and trades in a hefty volume of 1.7 million shares per day. It charges 49 bps in annual fees and was up 19.1% so far this month. The fund carries a Zacks ETF Rank #3 with a Medium risk outlook Market Vectors Vietnam ETF (NYSEARCA: VNM ) Vietnam’s economy has been benefiting from low energy costs and very low inflation. Last month, inflation dipped to zero for the first time ever, as per General Statistics Office. Inexpensive labor and devaluation of the Vietnamese dong for the third time in a year by the country’s central bank have also been boosting the country’s exports and attracting foreign investments. The recently enacted Trans-Pacific Partnership (TPP) deal is further expected to boost export demand for Vietnamese goods. Bloomberg data showed that the country’s exports went up 9.6% year over year to $120.7 billion in the first nine months of the year. In the same period, pledged foreign investment soared 53.4% while disbursed foreign investment rose 8.4% from the year-ago levels. According to Asian Development Bank, Vietnam is likely to record the fastest growth in 2015 among the five major Southeast Asian countries tracked by the bank. The growth would be driven by burgeoning private spending, rising exports and increasing flow of FDI. VNM tracks the Market Vectors Vietnam Index, measuring the performance of stocks listed in the Vietnamese stock index, which generates at least 50% of its revenues from within the local economy. The ETF’s holdings are mostly from the financial sector (44%). The fund has amassed nearly $467 million in assets and trades in a volume of 457,000 shares per day. It charges 76 bps in fees and has returned about 13.3% since the beginning of October. The fund carries a Zacks ETF Rank #4 (Sell) with a High risk outlook. Link to the original post on Zacks.com

The Long-Term Superiority Of Frontier Markets, Emerging Markets, And Gold

Summary Higher value will be found in frontier and emerging markets in the future. I plan to focus solely on frontier and emerging markets in Asia, Latin America, and Africa. The threats these markets are facing have created low valuations, and consequently a flurry of buying opportunities. I was extremely grateful to hear that the Fed decided to delay hiking interest rates, as this would have resulted in an unnecessary relegation of frontier and emerging markets. A strong USD, low commodity prices, and low investor confidence in frontier and emerging markets has resulted in extremely low valuations. Therefore, there are a flurry of investment opportunities available in frontier and emerging markets, for those willing to take a long-term view of these markets’ potential. A rationally constructed portfolio, with low valuation, invested into high-growth frontier and emerging markets, is highly unlikely to fail in the long term. As a Seeking Alpha contributor, my objective is to promote the superior long-term value of frontier and emerging markets in Asia, Latin America, and Africa. The FX risk of frontier and emerging markets is certainly justified by the high growth, low valuation, and high dividend yields. I am skeptical of the recent increased strength of the USD, and personally prefer investing in gold, frontier markets, and emerging markets. Vietnam: Low Valuation + High Growth = Paradise In my opinion, Vietnam is clearly the most superior destination for investment in Asia. I recently posted an article on Market Oracle explaining the growth of the Asian Hedge Fund industry, which mentioned that Vietnam was the superior location for investment, due to high growth and low valuation. I remained shocked as to why a large portion of investors are still deciding to take a wait-and-see attitude with Vietnam, only to potentially arrive too late, when valuation is higher. Increased consumer spending has been a substantial catalyst for Vietnam, which recently experienced annual GDP growth of 6.44% . Vietnam’s stock market has had a P/E of approximately 12, a far cry from the valuations in other Asia. The fusion of low valuation and high growth in Vietnam results in the country being a superior destination for value investors. Moreover, the Vietnamese dong has been a relatively stable currency, and the FX risk is well worth taking, considering the low valuation, high growth, and high dividend yields. Investors can invest in the VinaCapital Vietnam Opportunity Fund( OTCPK:VCVOF ) and Vietnam Holding Ltd.( OTC:VNMHF ) on the US OTC market, although higher liquidity can be found on the London Stock Exchange Listings. Anytime I mention Vietnam, I also highly discourage investors from investing in the Market Vectors Vietnam ETF(NYSEARCA: VNM ), based it on its poor historical performance. India: Small Cap Approach India’s economy has also had substantial growth, with most recent annual GDP Growth of 7% . As ETFs that invest their assets in India generally have high valuation, I have previously promoted the small cap approach to India. Small cap ETFs have lower valuation, and have had substantial earnings growth. This can be accessed through the Market Vectors Small Cap ETF(NYSEARCA: SCIF ) and the EG Shares India Small Cap ETF(NYSEARCA: SCIN ). Other favorable aspects of India include projections for continued high economic growth, high growth driven by consumer spending, relatively low inflation, increasing disposable personal income, and the country having the world’s largest youth population. The Philippines: High Growth at a High Price The Philippines has been experiencing substantial economic growth, with some noteworthy developments including the high growth of the business process outsourcing industry and the growth of townships outside of Manila. While the investment environment and growth is favorable, its appeal is somewhat offset by the high valuation. The Philippines’s stock exchange currently has a P/E of 25.05 , and the iShares MSCI Philippines ETF(NYSEARCA: EPHE ) currently has a P/E of 18. The Philippines can certainly be characterized as a high growth, favorable investment environment, although the valuation is a bit too high. Indonesia: Approach with Caution Indonesia is certainly no economic paradise in Asia, but I have identified a specific buy opporutnity for the Aberdeen Indonesia Fund(NYSEMKT: IF ), due to its low valuation and high discount. Favorable aspects of investing in Indonesia include growth in consumption, recent annual GDP growth of 4.67%, and high loan growth rates. I would not recommend investing in other ETFs with higher valuation, due to the substantial inflation and FX risks that Indonesia presents. Pakistan: A Contrarian Suggestion Pakistan is certainly a contrarian place to suggest , although the country’s decreasing terrorism and stock market’s yearly gain of 16.31% certainly justify this as a viable suggestion. Valuation is substantially low given the consistent rise of the Karachi Stock Exchange, making now a strategic time to enter. The newly launched Global X MSCI Pakistan ETF(NYSEARCA: PAK ) provides exposure to a variety of publicly listed companies in Pakistan, and currently has a P/E of 9.12. Chile: Latin America’s Highest Credit Rating Chile is another excellent site for investment , although its economic growth has been offset by the plunging price of copper. However, the country is continuing to fare well in terms of economic growth, and has the prestige of its banking industry to offer to investors. Chile’s banking industry has the highest credit rating in Latin America, and three of its banks are available to US investors at extremely low valuation. These banks include Banco de Chile (NYSE: BCH ), Banco Santander Chile (NYSE: BSAC ), and CorpBanca (NYSE: BCA ). General exposure to Chile’s economy can be accessed through the iShares MSCI Chile Capped ETF (NYSEARCA: ECH ) Colombia: Rebound I have also been following Colombia, based on my conclusion that low oil prices have unjustly lowered the valuation of many companies in Colombia, particularly in the banking industry. The most convenient way for investors to gain exposure to Colombia is through the Global X MSCI Colombia ETF (NYSEARCA: GXG ) which currently trades at 9.02, a far cry from its 52 week high of 19.72. Despite the current low oil price, Colombia has still been able to economically thrive and lead Latin America in terms of economic growth, with most recent annual GDP growth of 3% . A rebound in oil prices is essential for full recovery, but now is certainly an excellent time to investigate investment opportunities in Colombia. Investors can gain exposure to Colombia’s high growth banking industry through BanColombia S.A. (NYSE: CIB ) and Grupo Aval Acciones Y Valores S.A. (NYSE: AVAL ). Nigeria: Strength in its Newly Diversified GDP I have previously mentioned that Nigeria’s newly diversified GDP offsets the risk of the current low oil price environment. Moreover, while the threat of Boko Haram is substantial, it can not offset the high growth of consumer products, construction, and banking industries in Nigeria. The Global X MSCI Nigeria ETF (NYSEARCA: NGE ) offers very convenient exposure to Nigeria, with my biggest concern being the high valuation of the consumer products industry. The construction and banking industry are the most favorable sites for investment, with low valuation and high growth. The fund’s P/E is currently 8.22, which further justifies the logic of investing in Nigeria, although a further plunge in oil prices would prove to be damaging to the fund in the short term. Gold: On the Rise after The Fed’s Delay The Direxion Daily Junior Gold Miners Bull 3X ETF (NYSEARCA: JNUG ) rose by 10.63% after the Fed announced its decision to delay hiking interest rates. Historically, this fund has traded substantially higher, before QE in 2014. The historically higher price of gold, and this fund in particular, presents opportunities for investors willing to take a long term bullish view on gold. Volatility of this fund has been substantial, but its recent bottoming out presents opportunity. Investors should be willing to hold long term, as some financial experts have mentioned the likelihood of gold falling near $800/ounce. JNUG data by YCharts Conclusion To quote Jim Rogers , ” The US Dollar is not a safe haven, but people think it is; that’s why they put money there.” The rise of the USD, and its prestige as the world’s reserve currency, should be questioned by those investing in companies in the United States. Gold is certainly a conservative alternative, for those who do not want to risk investing in frontier and emerging markets. Furthermore, I consider the high growth environment of frontier and emerging markets to be superior to options in the United States. Plunging commodity prices and the strong USD are relevant threats to be acknowledged, but will be unsuccessful in presenting a long term threat to frontier and emerging markets. I do not focus on general emerging market funds, due to the discrepancies in opportunities in emerging markets. Thailand Malaysia are two examples of countries that I am concerned with, and would not invest in. Proper due diligence can result in a successful value based investing in frontier and emerging markets. The undertakings of the Fed will not be able to offset this in the long term. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. Disclosure: I am/we are long JNUG, GXG, NGE, IF, BCA, BCH, BSAC. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.