Market Overview

Flooding Not a Reason to Panic About Philippines

Flooding Not a Reason to Panic About Philippines

Western investors are gradually starting to become aware of the strength of the Philippines economy.

Those that follow ETFs by now know the iShares MSCI Philippines Index Fund (NYSE: EPHE) has been a stalwart among emerging markets ETFs in 2012.

EPHE's mettle has been tested recently as the Philippines is coping with severe flooding. The floods have caused 85 deaths and highlight one of the risks of investing in emerging markets. Due to poor infrastructure, many developing nations are ill-equipped to deal with natural disasters. The problem is many developing nations are found in corners of the globe where natural disasters have a tendency to strike with some frequency.

Not surprisingly, EPHE has been punished a little bit. Despite trading modestly higher today, the ETF is down about 1.1 percent in the past week. How the floods will impact the already robust Philippine economy remains to be seen, but the experience of other emerging markets ETFs following natural disasters can be instructive for those looking to buy EPHE on a dip. Consider the following:

Market Vectors Indonesia ETF (NYSE: IDX) Indonesia, Southeast Asia's largest economy, is a risky place when it comes to "acts of a high power" events. Not only is the country vulnerable to earthquakes, but those earthquakes can trigger tsunamis. In September 2009, an earthquake killed nearly 60 people in Indonesia.

Granted, this was after the S&P 500 had put in its March 2009 bottom, but the Market Vectors Indonesia ETF responded well after the earthquake. IDX, which debuted in January 2009, was trading at $17 on September 4, 2009. By the end of the year, the ETF was flirting with $21.

iShares MSCI Chile Investable Market Index Fund (NYSE: ECH) Chile is incredibly vulnerable to earthquakes. On January 2, 2011, a 7.1 earthquake struck the world's copper-producing country. That was followed up by a 6.8 quake in February and a 6.2 earthquake in March.

ECH did tumble mightily following the January 2011 quake and did not find a bottom until a couple of weeks after the March 2011 upheaval. The bounce from there was impressive, about 20 percent in a month, but the fund would struggle along with the rest of the emerging markets complex for the bulk of 2011.

iShares MSCI Turkey Investable Market Index Fund (NYSE: TUR) A deadly 7.2 earthquake ravaged Turkey in late October 2011. By some estimates, the death toll came to 1,000. Somewhat surprisingly, the iShares MSCI Turkey Investable Market Index Fund jumped in the days after the disaster, but by late November the ETF had plunged almost 25 percent.

In fact, investors kept punishing TUR until January 2012. Admittedly, it would have been difficult to have held TUR from November 2011 through today, but that would have been a winning trade. Hindsight aside, there is a lot to like about the Turkish economy. The cautionary tale is that this ETF did not act well following a major natural disaster.

iShares MSCI Thailand Investable Market Index Fund (NYSE: THD) Even those Americans that do not invest in Thailand probably remember the severe flooding that hit the country in late 2011. Those floods crippled hard-drive suppliers operating there, sending shock waves throughout the technology sector.

The iShares MSCI Thailand Investable Market Index Fund was volatile following the floods and by the end of November, the ETF had lost about six percent from its October percent. As was the case with IDX in 2009, a little bit of patience went a long way with THD. The fund had regained its October peak by early December and has added almost 18 percent year-to-date.

For more on emerging markets ETFs, click here.

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