By The ETF Professor
With the end of 2011 rapidly approaching, barring a miracle of epic proportions, this will go down as a very ugly year for emerging markets stocks and ETFs. Inflation problems in Brazil, China and India have played a heavy hand as has Europe's sovereign debt debacle. Uncle Sam's own debt woes haven't exactly been a help to emerging markets ETFs, either.
Unfortunately, that's just a short list of the problems facing emerging markets ETFs. There are more issues to be dealt with and that means there are more EM ETFs to take a pass on right now than many investors probably thought.
Let's have a look at four right now.
Market Vectors Egypt Index ETF (EGPT): Trading below $10, the Market Vectors Egypt Index ETF is a lot like a slop-covered pig with a pretty red rose in its snout. Sure, that rose is pretty, but we're still talking about a dirty pig here. Political upheaval in Egypt earlier this year predictably weighed on this ETF. But things should have gotten better post-regime change, right?
Wrong. EGPT is trading at all-time lows and has one of the worst-looking charts in the EM ETF universe. No value, just value trap.
iShares MSCI Indonesia Invstable Market Index Fund (EIDO): It pains us to include EIDO or any Indonesia ETF on this list because this is a market still loaded with potential. However, PT Mandiri Sekuritas said Indonesian stocks may extend their declines due to a worsening technical picture, Bloomberg News reported.
So that means EIDO should be left alone right now, not forever. EIDO or the Market Vectors Indonesia ETF (IDX) do merit consideration, but at a later date at better prices than where they currently reside.
EGShares India Small Cap ETF (SCIN): The EGShares India Small Cap is almost like a combination of EGPT and EIDO. It's trading at all-time lows, but India offers too much potential to say it should be scrapped from investors' agenda altogether. SCIN does have an ugly chart and if support at $12 fails, the chart will look worse. If the ETF can consolidate down here and not close below $12, it might merit a small position early next year, but not now.
SPDR S&P Emerging Europe ETF (GUR): It's easy to see why the SPDR S&P Emerging Europe ETF should be avoided right now and it's not just because of the ETF's 44% weight to the energy sector. It's because Europe is in this ETF's name. No, GUR doesn't have PIIGS exposure, but this ETF is the epitome of “guilt by association.” Plus, the five countries (Russia, Turkey, Poland, Czech Republic and Hungary) represented in GUR need developed Europe to flourish not flounder to help their own economies.
Bull case: It's hard to see it right now. Getting involved with any of these ETFs right now will require patience and a lot of it. That said, EIDO or IDX should rebound better than the rest when emerging markets ETFs do bounce back.
Bear case: All of these ETFs are vulnerable from a technical perspective and slowing BRIC growth along with Europe's problems would make bad situations for these funds worse.