Top 5 Country ETFs Of 2016 To Date

March 11, 2016

It hasn't been all that great a year for U.S. stocks. Even after the big rally in recent weeks, the SPDR S&P 500 ETF (SPY | A-97) is still down 2.1% for 2016.

That said, the U.S. is just one market of many (albeit the largest). Outside the States, there are numerous stock markets around the world that are actually up this year―a surprising fact given the gloom and doom concerning overseas growth.

Out of the 50 distinct country ETFs we looked at covering everything from developed markets to emerging markets to frontier markets, about half of them were in the green as of March 10.

The common theme among the outperforming funds is that they're primarily emerging markets. A handful of developed-market country ETFs have risen―such as the iShares MSCI Canada ETF (EWC | A-95), with a 6.6% gain or the iShares MSCI Australia ETF (EWA | B-95), with its 1.6% advance―but they are the exception rather than the rule.

Perhaps many of the emerging market ETFs are outperforming this year because they fared so poorly last year. Each of the top five country funds of 2016 were among the worst performers of 2015, with losses ranging from 22% to 42%.

In that context, a rebound is not shocking by any means. Here are the top five country ETFs of 2016 thus far:

5. iShares MSCI Indonesia ETF (EIDO)

The iShares MSCI Indonesia ETF (EIDO | B-99) jumped 10.9% year-to-date through March 10.

"Sentiment on Indonesia has shifted to positive because investors are seeing some improvements on the ground in terms of the economic recovery," Soo Hai Lim of Baring Asset Management told Bloomberg.

Indonesia's GDP grew by 5.04% from a year ago in Q4, the second-straight quarter of acceleration in growth.

Even so, Mark Mobius, executive chairman of Templeton Emerging Markets Group, cautions that the earnings prospects for Indonesian companies is not good, and that business-friendly reforms must be implemented before the stock market becomes attractive.

It's worth mentioning that the gains in EIDO this year were aided by the bounce back in Indonesia's currency―the rupiah―which climbed 5.3% against the U.S. dollar after falling to 17-year lows in 2015.

4. Global X MSCI Colombia ETF (GXG)

Decimated to the tune of 42% last year, the Global X MSCI Colombia ETF (GXG | D-77) has recovered 11.9% so far in 2016. Much of last year's drubbing was due to currency movements; the Colombian peso dropped by 33.6% to a record low against the greenback in 2015. This year, the peso is down 1.6% against the buck.

"For foreign investors, Colombian stocks are really cheap now, especially in pesos," Alejandro Reyes, head of research at brokerage Ultraserfinco SA, told Bloomberg. "The recovery in the price of oil is also increasing confidence that Colombia’s economy should do better, that it will be able to grow and fund any deficits."

Despite head winds, analysts at BNP Paribas believe that Colombia will be able to maintain its investment-grade credit rating as the government passes fiscal reforms this year. However, they see GDP growth for the year coming in a bit light, at 2.2%, below the 3% government target.

3. iShares MSCI Thailand Capped ETF (THD)

The iShares MSCI Thailand Capped ETF (THD | B-98) added a solid 13.2% year-to-date, aided by a modest 2.2% increase in the country's currency, the baht.

Analysts at J.P. Morgan Asset Management recently upgraded Thailand stocks to an "overweight," citing the potential for more monetary easing and government spending. They also cited high dividend yields―THD currently has a 30-day SEC yield of 2.7%―and low equity allocations among domestic institutions as reasons to buy.

Thailand's GDP grew by a little less than 3% in 2015, up significantly from the sluggish levels of the year before.

2. iShares MSCI All Peru Capped ETF (EPU)

Taking the No. 2 spot on the single-country ETF returns list is the iShares MSCI All Peru Capped ETF (EPU | C-42), with a gain of 22.5%.

Currency movements haven't been a factor in EPU's advance this year: The Peruvian sol is down less than 1% against the dollar this year after losing 14.8% against the buck last year.

This year's gain is an impressive turnaround for the Peruvian stock market, which, as recently as late last year, was under the threat of being downgraded to frontier market status from emerging market status by MSCI (of concern was the fact that Peru has limited liquidity in its stock market―something the government promised to address).

There's no doubt that the rebound in commodities, which make up 60% of the country's exports, was a shot in the arm for Peru's stock market so far this year. Copper, in particular, is a key component of the Peruvian economy.

1. iShares MSCI Brazil Capped ETF (EWZ)

Like GXG, the iShares MSCI Brazil Capped ETF (EWZ | B-96) is another Latin America fund that was hammered last year due to growth and currency concerns. Brazil's real plunged a whopping 49% against the dollar last year before rebounding about 8.5% in the early part of 2016.

That's helped push EWZ up by 25.6% year-to-date.

Hopes that Brazil's highly unpopular president, Dilma Rousseff, will be impeached are partly responsible for the rebound in the country's stock market.

“Traders are betting on the possibility of a change in government happening sooner rather than later,” said Luciano Rostagno, chief strategist at Banco Mizuho do Brasil. The removal of Rousseff may finally allow the government to come together and put in place the policies necessary to spur growth in Latin America's largest economy.

The recent rebound in commodities―Brazil is a major producer of oil, coffee and sugar―has certainly helped the case for Brazilian stocks as well.


Contact Sumit Roy at sroy@etf.com.

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