ETF Investors Predict Better Outlook For Latin America Than Asia

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Asia Pacific (EPP) and Latin America (ILF), the two regions that make up most of the Emerging Market Index (EEM), have moved in very different directions recently. The Asia Pacific Ex-Japan index is down -4.5% on average over the past 30 days and many of the countries, including Taiwan (EWT), Australia (EWA), and China (FXI), have suffered large declines and have fallen in the rankings as a result. Despite the drops, PE ratios are still higher on average and most of the indexes would have to fall much further to be considered values.

Meanwhile, Latin America continues to perform well and the region has the highest 30-day, 90-day, and one-year returns. Brazil has the highest return of any of the countries over the past 90-day and one-year periods and continues to dominate the rankings - it has been at or near the top for months. And Mexico (EWW), once at the bottom of the rankings, is the only country with a positive return over the last 30 days and has moved up considerably. Volatility has also jumped in the region, but still isn't quite as high as China or the Asia Pacific Ex-Japan.

Interest in Emerging Markets remains strong, primarily because the US (SPY) and European (IEV) markets have been unable to deliver the returns that investors expect. At some point this will change -the question is exactly how and why. At one time, there was a widely held investment thesis that a global downturn would trigger a "flight to quality" in which capital quickly exits emerging markets. Then, the consensus view was that growth overseas would not only continue unabated, but would also just barely prevent a US recession. But if Asian growth is expected to be constrained by limited access to natural resources, then that may explain why investors are now projecting a better outlook for resource-rich Latin America.