Three ETFs For Account Surplus Countries
In an environment of slumping emerging markets equities, plunging currencies and vulnerable sovereign credit ratings, the current account surplus has become one of the most prized economic traits a country can possess.
The combination of tumbling currencies and widening current account deficits explain the deep slumps recently experienced by ETFs tracking emerging markets such as India and Indonesia. Those widening deficits also explain why global investors are pulling cash from those countries and why both are vulnerable to sovereign ratings downgrades.
Fortunately for investors, there are a few countries in both the developed and emerging worlds that sport current account surpluses and these nations are easily accessible via ETFs. Consider the following funds.
iShares MSCI Philippines ETF (NYSE: EPHE)
When it comes to Southeast Asia ETFs these days, it is hard to see the forest through the trees. Given the substantial long-term potential offered by Philippine equities, EPHE undoubtedly the forest while the trees dragging this ETF down are the likes of Indonesia, Malaysia and Thailand.
The simple fact is that on top of all of the compelling fundamental reasons to invest in the Philippines is that the country has a current account surplus. The Philippines is often compared to Indonesia, a country with a WIDENING deficit.
EPHE has been slammed on fears the Federal Reserve will taper its quantitative easing program, which has led to a weaker peso. That situation is overstated and/or misunderstood because the Philippines is on the receiving end of billions in dollar-denominated foreign remittances and the country does not need to service a massive amount of dollar-denominated debt.
Related: Revisiting The Philippines ETF.
Market Vectors Poland ETF
Or the iShares MSCI Poland Capped ETF (NYSE: EPOL). Either way, investors gain exposure to Poland, a country that has proven to be one of the most durable emerging markets. While EPOL and PLND are not entirely immune to Fed tapering, the two ETFs have gained about 2.7 percent in the past month.
Poland's most recently posted current surplus was something of a surprise, but a positive one at that. What should not be a surprise is the catalyst that can buoy further gains for EPOL and PLND. That being an ongoing economic recovery in the eurozone. Simple geography dictates that investors looking for emerging markets plays on the eurozone recovery should consider EPOL and PLND.
Market Vectors Vietnam ETF (NYSE: VNM)
Vietnam, classified as a frontier market, has been hammered by Fed tapering fears and slowing Chinese economic growth, factors that have weighed on a plethora of emerging markets ETFs. Vietnam also has its own problems to deal with, namely its plans to eradicate bad debt and sour loans from its fragile banking system.
Long story short, VNM has plunged nearly 20 percent in the past 90 days. However, foreign remittances to the country are rising, currency reserves are surging and it is estimated the 2013 account surplus could be $5 billion.
VNM had a P/E of 11.87 and a price-to-book ratio of 1.29 at the end of July, according to Market Vectors data. That makes Vietnamese equities cheaper than their Brazilian, Indian and Indonesian counterparts, just to name a few.
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