Market Overview

Staggering Facts About Declining Emerging Markets ETFs

Staggering Facts About Declining Emerging Markets ETFs

It is not a stretch to say that plenty of investors are well aware of the broad-based damage being inflicted upon emerging markets ETFs. Heading into the start of trading, the Vanguard FTSE Emergign Markets ETF (NYSE: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSE: EEM), the two largest emerging markets ETFs, were both off more than nine percent in the past month.

One reason investors have embraced ETFs such as VWO and EEM over the years is because of country diversification, or the ability to dodge single country risk. Said another way, a nine percent drop in a month is nothing to brag about, but things are much worse for some other emerging markets ETFs. Some country-specific funds are being taken to the woodshed. Just look at these jaw-dropping facts, but take heart because there are some pleasant surprises on this list.

Earlier this year while the BRIC quartet and other large developing markets such as South Korea and South Africa, folks were complaining that all emerging markets were laggards. That meant they were ignoring stellar performances turned by ETFs with heavy exposure to markets such as Indonesia, the Philippines and Thailand.

That was then and this is now and now the investors that did embrace those markets are tripping over themselves to get out.

Despite an abundance of good news, the iShares MSCI Philippines Investable Market Index Fund (NYSE: EPHE) ended May flirting with a correction. A plunging baht had the iShares MSCI Thailand Capped Investable Market Index Fund (NYSE: THD) on a similar trajectory. In two weeks, things have gotten much worse.

FACT: EPHE's current four-week decline now equals about 18.5 percent.
FACT: This is the second-worst decline in the ETF's less-than-three-year trading history.
FACT: Another 1.5 percent off and EPHE enters bear market territory.

As for THD, things are no better.

FACT: Even with Thursday's bounce, the Thailand ETF is down 16 percent in the past month.
FACT: That decline is worse than the 2011 post-typhoon drop.
FACT: THD's current downward spiral is worse than what was seen during the 2010 Red Shirt/Yellow Shirt protests.

Latin America
This is a point that has been hammered quite a bit recently, but for those that do not know, Latin America ETFs are a mess right now. Brazil's Bovespa entered a bear market earlier this week.

FACT: The iShares MSCI Brazil Capped Index Fund (NYSE: EWZ) is trading around $48. If it falls another $2, the ETF will touch its lowest levels in 50 months.
FACT: Chile has its own problems. Even with today's three percent jump, the iShares MSCI Chile Capped Investable Market Index Fund (NYSE: ECH) only needs to fall another five percent to enter bear market territory.
FACT: The iShares MSCI All Peru Capped Index Fund (NYSE: EPU) is in a bear market on a year-to-date basis.
FACT: If EPU closes below $35, it will be its worst close since October 2011.

Pleasant Surprises
Yes, there are some.

FACT: Investors are not departing ALL emerging markets ETFs. The iShares MSCI Emerging Markets Minimum Volatility Index Fund (NYSE: EEMV) says as much with June inflows of almost $161 million.
FACT: The iShares Emerging Markets Dividend Index Fund (NYSE: DVYE) has drawn in $5.1 million this month.
FACT: Not all emerging markets are falling. The Market Vectors Poland ETF (NYSE: PLND) is up 6.6 percent in the past month.
FACT: Frontier markets rock. In the past month, the iShares MSCI Frontier 100 ETF (NYSE: FM), the WisdomTree Middle East Dividend Fund (NASDAQ: GULF) and the PowerShares MENA Frontier Countries ETF (NASDAQ: PMNA) are all higher in the past month.

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