Cheapest Country ETFs In The World

October 30, 2014

Plenty of country plays look cheap, but the devil is in the details when it comes to value investing.

Many of us search for the “cheapest” ETFs from a cost perspective based on expense ratios and tracking differences. But it’s also worth searching for the “cheapest” ETFs from a valuation perspective.

Global valuations have shifted since the quantitative easing taper tantrum hit the markets in May 2013. Bold stimulus measures from the European Central Bank and the Bank of Japan have also caused a rotation of assets from emerging to developed markets.

An important, but often overlooked, data point on our ETF reports is the fund’s price-to-earnings (P/E) ratio. P/E ratios are popular with individual stock analysis, but there’s less focus on them with ETFs.

We calculate ETF P/Es by taking the ratio of the weighted average of the fund’s constituent share prices to their weighted average trailing earnings. We also incorporate negative earnings in our calculation, though some fund sponsors, including iShares, don’t. For a deep dive on negative P/Es, see my colleague Paul Britt’s blog.

There are different ways to calculate P/E (as the iShares’ example shows), so you have to make sure you’re comparing funds with P/Es calculated using the same methodology, as Dave Nadig stressed in a recent blog.

10 Cheapest Country ETFs

I recently scoped out single-country ETFs trading at the lowest valuations, per our trailing P/Es displayed on our equity reports. Below is a list of the 10 “cheapest” markets as of Oct. 1, 2014.

P/E (ETF Avg) P/E (Bench) ETFs
Russia 5.94 4.95 ERUS, RUDR, RBL, RSX
China (Offshore) 9.68 13.82* FCHI, MCHI, YAO, GXC
Turkey 9.73 9.74 TUR
Nigeria 10.18 11.29 NGE
Hong Kong 10.36 10.76 EWH
China (Onshore) 11.25 13.82* ASHR, PEK, KBA
Norway 11.28 10.42 NORW, ENOR
South Korea 12.05 12.8 EWY, DBKO, HKOR
Sweden 12.85 13.38 EWD
Singapore 13.21 12.91 EWS
*Benchmark measured by MSCI "All China" Index


While you look at the list, keep in mind that comparatively, the iShares MSCI USA ETF (EUSA | B-96), which captures 85 percent of the U.S. market cap, carries a P/E of 19.47, while the large-cap-focused SPDR S&P 500 ETF (SPY | A-97) carries a P/E of 18.64.

For consistency’s sake, I only focused on “total market” size ETFs. I also stuck to “plain vanilla” cap-weighted funds and eliminated “enhanced-beta” ETFs and style funds, including value-focused ETFs.

For countries with more than one cap-weighted ETF trading, I took the average of those funds. Benchmark P/E ratios are represented by MSCI’s Investable Markets Index (IMI) series, which aims to capture 99 percent of each respective country’s market cap.


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