Cheapest Country ETFs In The World

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

Senior ETF Specialist
Reviewed by: Dennis Hudachek
Edited by: Dennis Hudachek

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
Russia5.944.95ERUS, RUDR, RBL, RSX
China (Offshore)9.6813.82*FCHI, MCHI, YAO, GXC
Hong Kong10.3610.76EWH
China (Onshore)11.2513.82*ASHR, PEK, KBA
Norway11.2810.42NORW, ENOR
South Korea12.0512.8EWY, DBKO, HKOR
*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.


Russia Tops List

It’s no surprise that Russia jumps out here on top. Russia is currently trading at trailing earnings of about 6, based on the average P/E of the four cap-weighted Russia ETFs. Of the bunch, the $2 billion Market Vectors Russia ETF (RSX | C-65) has the “highest” P/E—7.66—probably because of its single security capping of 10 percent.

Russia certainly looks cheap, but geopolitical strategist Ian Bremmer recently told in our Alpha Think Tank newsletter that even if the Russian market is no longer in free fall, with no end in sight to the Ukraine conflict, it’s too soon to call for a bottom.

China & Hong Kong

Surprisingly, “offshore” China is now more expensive than “onshore” mainland securities. I’ve separated out China into “offshore” and “onshore” markets, since they’re still largely two separate markets when investing with ETFs.

Hong Kong also popped up fifth on the list. Even before the “Occupy Hong Kong” protests, Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, is one macro strategist who’s been pointing out to the low valuations of Hong Kong shares.

Hong Kong is separated from China because it’s considered a developed market. Remember that Hong Kong’s benchmark P/E is not based on the Hang Seng Index, but MSCI’s Index. There’s zero overlap in the holdings of the iShares MSCI Hong Kong ETF (EWH | B-96) with other China ETFs.

Also sitting high on the list are Turkey and Nigeria. Again, like Russia, these countries are dealing with political and/or geopolitical issues, so it’s hard to determine how much of those risks have been priced into their share prices.

Value Play Or Value Trap?

For what it’s worth, cheap valuations in and of itself obviously don’t signal buying opportunities. These may simply represent markets that have sold off due to ongoing geopolitical risks, and might remain low and end up being value traps.

Still, it’s hard to deny that U.S. markets are richly valued at the moment. For investors concerned about valuations at home, these countries may represent cheap or beaten-down markets, appealing to value-oriented or contrarian investors willing to go against the herd.



At the time this article was written, the author held a long position in ASHR. Contact Dennis Hudachek at [email protected], or follow him on Twitter @Dennis_Hudachek.


Dennis Hudachek is a former senior ETF specialist at