CAPPT Update: Unheralded Emerging Markets Acronym Keeps Delivering
It has been duly noted that the emerging markets universe is littered with acronyms. BRIC, CIVETS and MIST and that just identifies the popular ones. Given the popularity of these catchy terms, particularly BRIC, it is hard for new emerging markets acronyms to make inroads.
That did not keep a new one from popping up earlier in 2012. That acronym is CAPPT, which stands for Chile, Argentina, Peru, Philippines and Thailand.
In the essence of transparency, it should be noted that Argentina is classified as a frontier market and the country is in danger of being downgraded from there.
Argentina as represented by the Global X FTSE Argentina 20 (NYSE: ARGT) has been the problem child in CAPPT this year. The ETF was crushed earlier this year following the YPF (NYSE: YPF) nationalization, a move that signaled to foreign investors the country was far from open for business.
ARGT is still thinly traded (less than 3,000 shares per day), but the fund has chipped in a 5.6 percent gain among the major CAPPT ETFs over the past 90 days. That puts the fund right in the middle of the pack. The worst-performer of the CAPPT quintet over the past three months is a surprise.
That dubious honor belongs to the iShares MSCI Chile Investable Market Index Fund (NYSE: ECH). Why ECH has only gained 1.4 percent in the past three months is up for debate. Some might say it is because the ETF is richly valued compared to the broader emerging markets universe. ECH currently trades at almost 23 times earnings and 2.7 times book value, according to iShares data. In P/E terms, that makes ECH far pricier than the iShares MSCI Emerging Markets Index Fund (NYSE: EEM).
Still, ECH has a beta of 1.9 against the S&P 500, implying the ETF should be up much more since July. The bull case for Chile remains in tact, that being the country is open, transparent and friendly to foreign investment compared to Argentina and Brazil.
Perhaps it has been slack commodities demand that has stymied ECH recently, but that theory does not explain why the iShares MSCI All Peru Capped Index Fund (NYSE: EPU) is higher by nearly eight percent since July. As a major producer of gold and silver among other metals, Peru is viewed as a materials play. That thesis sent traders running into EPU ahead of and following the announcement of another round of quantitative easing from the Federal Reserve.
The danger with EPU could be that with enthusiasm for QE3 now all but dead, the ETF could be vulnerable to retrenchment. The good news is Peru's second-quarter GDP jumped 7.4 percent and EPU is still a little cheaper than EEM.
The iShares MSCI Philippines Investable Market Index Fund (NYSE: EPHE) has been the second-worst CAPPT performer over the past 90 days, gaining "just" 5.5 percent. On the other hand, this is one of the best country-specific ETFs of any kind on a year-to-date basis with a gain in excess of 32 percent.
Based on some valuation metrics, EPHE is expensive relative to some ETFs tracking BRIC countries. However, EPHE's forward P/E is not that far north of the S&P 500's and it is worth noting that the ETF has a beta of below one against the U.S. broader market index.
The iShares MSCI Thailand Investable Market Index Fund (NYSE: THD) has jumped almost 10 percent in the past three months and is up more than 25 percent year-to-date. Those are the type of statistics that could lead some investors to feeling the ETF has come too far too fast or that the easy money has already been made.
In terms of political volatility, Thailand still is not perfect, but of the CAPPT nations, it certainly ranks ahead of Argentina. Given that Thailand's economy is not as materials dependent as Peru's and far more advanced than that of the Philippines, THD could be the second-most conservative of the CAPPT ETFs after ECH.
Even with its recent gains, THD's forward P/E, price/free cash flow ratio and earnings growth rates compare quite favorably against the S&P 500.
For more on CAPPT, here.
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