Emerging Market ETFs To Signal A Buying Opportunity

Includes: EPI, EWG, EWY, EWZ, TUR
by: Tim Plaehn

An article and chart from Mebane Faber on his website showing that two-thirds of the single country ETFs he tracks are in bear markets (down more than 20% from their all-time highs) prompted thoughts on whether there are any value buying opportunities among any of these ETFs.

An initial scan through the list of ETFs results in the rejection of those funds covering the southern European countries such as Italy and Spain - too much uncertainty. Russia and China are dropped due to a general aversion to putting any trust in the financial numbers from companies out of those countries. That still leaves a handful of interesting prospects to dig deeper into. Here are some quick facts and ideas concerning a handful of interesting national markets.

India: The WisdomTree India Earnings Fund (NYSEARCA:EPI) is down 44% from its November 2010 peak. The IMF growth projections for India are 6.9% and 7.3% for 2012 and 2013, respectively. The growth rate has slowed from about 10% in 2010. Yet, 7% GDP growth is very good compared to almost anywhere else.

Brazil: The iShares MSCI Brazil Index (NYSEARCA:EWZ) is off 36% from the most recent peak in November 2010. For the Brazil ETF, the post 2008-2009 bear market recovery did not reach the pre-bear market high. The local currency IBOVESPA stock index peaked in November 2010 very close to the May 2008 high. The IMF expects growth of 3% and 4.1% for 2012 and 2013. These growth rates are up from 2.7% in 2011 but well below the 7.5% rate of 2010. Brazil has been working to weaken the Real which has climbed to 2 to the dollar, up from 1.7. A weakening Real hurts the dollar price of EWZ.

Germany: The iShares MSCI Germany Index Fund (NYSEARCA:EWG) is 38% off its peak, but that peak occurred way back in December 2007. Germany is the strongest economy in Europe, which means a growth forecast of 0.6% and 1.5% for this year and next. Potential comes from the benefits of a weak euro to Germany's export driven economy. The downside is whether anyone will care if the rest of Europe remains in a recession.

South Korea: The iShares MSCI South Korea Index Fund (NYSEARCA:EWY) is down 25% from a year-ago peak and has made a sharp 10% decline in the last 3 weeks. The two year growth forecasts are 3.5% and 4%, maintaining the 3.6% growth of 2011. More study is required here to figure out what is up in South Korea.

Turkey: The iShares MSCI Turkey Index Fund (NYSEARCA:TUR) has declined 39% from its November 2010 peak. The IMF 2012 and 2013 projected GDP growth rates for Turkey are 2.3% and 3.2%, respectively. This follows 8.5% growth in 2011.

The interesting markets here are India, Brazil and Turkey. All three ETFs peaked during the first week of November 2010 and are now down around 40%. All three have turned strongly downward since February and are starting to look like the end of a bear market blow-off. Keep an eye on all three ETFs for a sign of a bottom, wait a month or so for confirmation, and then consider all three for purchase.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.