Market Vectors Egypt Index (NYSEARCA:EGPT) This is how strong the Market Vectors Egypt Index ETF was in 2012: The ETF posted a gain of 32 percent despite falling 14.5 percent in the last three months of the year. For much of 2012 EGPT fought of an array of negative headlines out of Egypt ranging from bloody protests in Cairo to tensions in other Middle East nations to a new political regime that appears hardly more pleasant than the one it replaced.
What EGPT’s performance over the last few months of 2012 says is that the ETF was likely bid higher on optimism that Egyptian President Mohammed Morsi would be usher in a new era for Egyptian politics and economics. To this point, that has not been the case.
Morsi has not been a friend of business and nterference by the Morsi administration could impact foreign direct investment and plague Egypt’s domestically-focused economy, one that is already suffering from rampant poverty and high unemployment. Speaking of, Egypt has an unemployment rate of about 12 percent, but that number doubles for the nation’s young people. Investors’ patience with Egypt may be wearing thin making EGPT a sell if it falls below support at $12.
iShares MSCI Malaysia Index Fund (NYSEARCA:EWM) With a 2012 gain of 12.5 percent, the iShares MSCI Malaysia Index Fund appears to be somewhat of an emerging markets laggard, particularly as far as ETFs tracking Southeast Asian nations go. That does not mean EWM is not worth a look in 2013. Actually, the opposite is true.
This year is an election year in Malaysia and Prime Minister Najib Razak, the incumbent, and his Barisan Nasional coalition are facing what is expected to be one of Malaysia’s most hotly contested elections.
So what is a politician to do when he wants to retain office? Open up the government coffers to stimulate the economy. That is what Razak is trying to do with the $444 billion Economic Transformation Program, which is aimed at bolstering domestic consumption and reducing poverty. However, there may be limits to the government largess. The government does not want to exceed a debt-to-GDP level of 55 percent, but with the number currently in the 53 percent to 54 percent area, the spending to win elections scenario may be put to the test this year in Malaysia.
Note two interesting factors about EWM. It has a trailing 12-month yield of 3.66 percent and a beta of just 0.57 against the S&P 500, according to iShares data.
iShares MSCI Mexico Inv. Mt. Idx. (NYSEARCA:EWW) The iShares MSCI Mexico Investable Market Index Fund was one of the juggernauts among Latin American ETFs in 2012 with a gain of 27.5 percent. There are reasons why EWW’s uptrend can continue, though the most prominent one is how much the U.S. economy improves.
EWW and the Mexican economy have already been benefiting from an influx of manufacturing jobs from China. Rising wages in China have sent some manufacturing jobs to Mexico and due to higher fuel prices, some U.S. firms have favored production of goods in Mexico over China due to the former’s proximity to the U.S.
Key to EWW’s outlook is how much recently passed labor reforms will immediately impact the Mexican economy. Mexico has had issues with poor job creation and high unemployment in the past, but efforts to improve the domestic economy could mean a boost to domestic consumption. That could be a potential catalyst for EWW, which allocates more than 38 percent of its combined weight to staples and discretionary names.
SPDR S&P China (NYSEARCA:GXC) This list probably would not be complete without at least one China ETF and the inclusion of such a fund is made all the more necessary by the impressive performances notched by many China funds over the last few months of 2012.
For much of 2012, China ETFs provided investors with frustration as market participants debated the ability of policymakers in Beijing to engineer a soft landing for the world’s second-largest economy. Slowing growth, dividend cuts by Chinese banks (financial services are often excessively weighted in China ETFs), geopolitical controversies and negative headlines regarding some Chinese small-caps were among the issues to confound investors looking for China exposure.
China’s new leader, Xi Jinping, is working to improve confidence in the Chinese economy and his efforts are being helped by a spate of positive economic data to close 2012 that shows China is in turnaround mode.
The subsequent ebullience helped lift the iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), the largest China ETF by assets, to a 15.8 percent gain over the last three months of 2012. That might leave some wondering why GXC should be picked over FXI. Fair question, but over the past year, two years and five years, GXC has consistently (and easily) outperformed FXI. GXC has also been consistently less volatile than FXI over longer time frames.
Not only that, by GXC is home to 220 stocks, nearly 8.5 times as many as FXI. Like FXI, GXC’s top sector weight is financials at 34.7 percent, but that is far lower than the 57.5 percent FXI allocates to the same sector.
The good news is that on a valuation basis, Chinese ETFs still look inexpensive relative to the broader emerging markets universe. FXI has a P/E ratio of 12.89 and a price-to-book ratio 1.61, according to iShares data. GXC is slightly cheaper with a P/E ratio of 10.9 and a price-to-book ratio of 1.55.
This article was originally written by The ETF Professor, and posted on Benzinga.
