Looking Beyond VWO And EEM

May 23, 2012

But beyond China, Sharma has interesting views about different emerging markets in the coming decade.

He argues that the age of concerted and explosive growth together—the likes of which we saw in all emerging markets over the past decade—may be coming to an end. In place of that broad growth we’ve seen, the coming decade is likely to feature some markets that do better than others.

So where does Sharma see opportunities in emerging markets?

Interestingly, he is not so optimistic about the BRICs. Sharma seems more opportunity in countries like Poland, Czech Republic, Turkey, Indonesia and the Philippines, as well as in frontier markets like Sri Lanka.

He lists Poland and the Czech Republic as being in the “sweet spot” of Europe, referring to EU nations that are about to gain membership into the eurozone that have sound banking and financial institutions.

Investors have some options. There are currently two ETFs specifically targeting Poland: The $107 million iShares MSCI Poland Investable Market Index Fund (NYSEArca: EPOL) and the $29 million Market Vectors Poland ETF (NYSEArca: PLND).

There’s no Czech Republic-focused ETF yet, although Global X has put one into registration with the Securities and Exchange Commission.

Sharma, as I said, also likes Indonesia, Turkey, the Philippines and Sri Lanka, based on their fiscal health, favorable demographics and/or market-friendly political reforms now under way.

For those interested in Turkey, there’s the $369 million iShares MSCI Turkey Investable Market Index Fund (NYSEArca: TUR).

For Indonesia exposure, there are three options: The $270 million iShares Indonesia Investable Market Index Fund (NYSEArca: EIDO), the $483 million Market Vectors Indonesia Index ETF (NYSEArca: IDX) and the $4.7 million Market Vectors Indonesia Small-Cap Index ETF (NYSEArca: IDXJ).

For the Philippines, there’s the $136 million iShares MSCI Philippines Investable Market Index Fund (NYSEArca: EPHE), which has recently been on a tear despite the weakness in broad emerging markets ETFs. While there is no Sri Lanka ETF yet, Global X also filed to market a Sri Lanka ETF.

The takeaway here isn’t that investors should try to hit home runs by picking individual countries.

But after a decade of explosive emerging markets growth and in the post-financial crisis world, investors should increasingly do their homework.

They need to get a better understanding of the differences between the various emerging markets, rather than just blindly throw money in broad-based, cap-weighted funds like VWO and EEM.

 

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