The global financial turmoil severely tested the mettle of many
a developing economy. While many proved their resilience,
challenging the foundation of many mature economies, others were
stretched considerably to survive the crisis.
With an improving global outlook and some countries gaining
strength in 2012, there were many country-specific ETFs delivering
double-digit gains to the investors.
The markets in 2013 started on a great note with many country
ETFs beginning the year with a bang. In this context the Vietnam
ETF has turned out to be a surprise package for investors.
Market Vectors Vietnam ETF
(VNM) has returned over
23% in the year-to-date period, and could continue with its solid
performance going forward (A Trio of Top Emerging Market ETFs for
2013).
However, there are some countries which failed to impress from
the very start. Below we are highlighting three such nation ETFs
which have disappointed investors this year:
South Korea
South Korea, Asia’s fourth largest economy and one of the most
stable, showed its strong resilience to the global turmoil and
turned out to be one of the best performing regions in 2012 (South
Korean ETFs: Best Way to Play Asia?).
However, in the New Year, when the other economies gained
strength, South Korea gives the impression that the economy may be
lagging somewhere. The ETF tracking the region had a poor start to
2013 (Are Korean ETFs In Trouble?).
South Korea’s housing market is facing a difficult time and
could be headed for a bit of trouble thanks to unfavorable
demographics. The property market appears to be pinned down by many
structural tribulations like an aging population and retiring baby
boomers on top of the low-growth environment.
The economy which was already facing troubles from the Euro-zone
crisis due to poor exports has been made more vulnerable by the
rising won. This makes exports even more expensive. Also, with a
depreciating yen supported by economic reforms in Japan, the
situation is further aggravated as Japan comes into direct
competition with the nation (South Korea ETF Investing 101).
In this sluggish growth environment, ETFs tracking the region
are bound to deliver negative gains to an investor. iShares
MSCI South Korea Capped ETF
(EWY), which offers a
broader exposure to South Korean equities, ended 2012 at a solid
gain of 19.9% (Top Ranked South Korea ETF in Focus).
However, in 2013, the ETF just does not appear to be in good
shape as revealed by its year-to-date negative return of 8%.
The fund provides exposure to 106 South Korean stocks while
investing $3.2 billion in the portfolio. The volume levels are seen
at more than 1 million shares a day.
Samsung plays a very dominant role in the fund’s performance as
the fund has assigned a healthy 21.6% of its asset base to the
company. Samsung continues to gain ground in the smartphone
business and is in neck-to-neck competition with Apple's iPhone in
terms of sales.
Attributable to rising demand for Samsung products and Apple’s
earnings miss, the company continues to gain strength (3 Apple
Proof ETFs).
Despite Samsung’s solid performance in the near term, the ETF
does not seem to be in top form. Other top positions have been
allocated to Hyundai and Posco. The fund charges an expense ratio
of 61 basis points.
Among sector allocation, Information Technology, Consumer
Discretionary, Financials, Industrials and Materials get
double-digit allocation in the fund.
South Africa
Labor unrest and strikes in the mining and transportation
industry of South Africa continue to hamper its growth prospects
and its currency, the rand. Resource-rich South Africa is arguably
the world’s largest producer of precious metals and likewise its
currency, the rand, is regarded as a commodity currency exhibiting
high volatility (Time to Exit South Africa ETF?).
Due to a protracted strike in the mining industry, the country’s
economic output and its growth, which has already been impacted by
the Euro-zone crisis, come into limelight again. The mining
industry makes up for 60% of the country’s exports which implies
that the country’s growth in highly dependent on the segment.
The curtailed output in the mining industry also leads to a
higher trade deficit which again puts a question on the country’s
currency prospects. Apart from this, a high unemployment rate in
the country also remains a major concern as it currently stands at
24.9%.
In such a scenario, iShares MSCI South Africa ETF
(EZA) turned out be one
of the worst performing country ETFs to start the year. The fund
has delivered a negative return of 5.7% year to date.
EZA is one of the main sources to play the South African economy
and provides exposure to 51 securities. The fund manages an asset
base of $506 million and charges investors 61 basis points in fees
annually.
At 17.68%, EZA allocates a hefty proportion to the Mining sector
occupying the third position in sector allocation after Financials
(26.6%) and Consumer Discretionary (17.7%) (Top Mining ETFs in
Focus).
The fund also has not been able to do much in minimizing the
stock-specific risk as nearly 55% of the asset base goes towards
the top ten holdings. Among individual holdings, MTN Group, Naspers
and Sasol occupy the top three positions in the fund.
Malaysia
Malaysia is one of the regions which showed its resilience to
the global slowdown attributable to increased private consumption
and investment. Private consumption and investment recorded growth
of more than 20% in the first three quarters of the year (Can
Anything Stop These Southeast Asia ETFs?).
Despite healthy domestic demand and an improving prospect for
GDP growth in 2013, Malaysian ETFs have not found it easy this
year.
The primary reason behind this underperformance is political
concern looming large on Malaysian equities. The market has
weakened on the speculation that Prime Minister Najib Razak’s and
his party will face a more uncertain outcome for this year’s
upcoming election.
This led to a fall in prices of Malaysian equities which
consequently affected the performance of the Malaysian ETF.
iShares MSCI Malaysia ETF
(EWM) which provides
exposure to 43 securities dived down 5.1%, turning out to be one of
the worst performing country ETFs to start the year (Malaysia ETF:
the Perfect Emerging Market Fund?).
The fund manages an asset base of $887.4 million and charges a
fee of 51 basis points. The fund has a concentrated bet on the top
ten holdings as 54.1% of the asset base goes towards them.
Among sector holdings, the highest weighting go to Financials
with 30.6% of asset base invested in it. Industrials,
Telecommunication, Consumer Staples and Consumer discretionary also
get double-digit allocation in the fund.
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ISHARS-MALAYSIA (EWM): ETF Research Reports
ISHARS-S KOREA (EWY): ETF Research Reports
ISHARS-S AFRICA (EZA): ETF Research Reports
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