2 Country ETFs Still Doing Well

09/08/2011 10:30 am EST

Focus: ETFS

Nicholas Vardy

Editor, Oxford Wealth Accelerator

“There’s always a bull market somewhere,” is the tag line for oneof  my newsletters and it’s proving effective for this product as well, says Nick Vardy of The Global Guru.

Of course, there have been bull markets in other asset classes—gold, US Treasuries, and the Swiss franc. But as for global stock markets…well, the picture for 2011 has been grim.

Many global stock markets actually entered what were technically bear markets—with drops of 20% or more—in early August. So bull markets have been few and far between, no matter how far afield you looked. Even after the recent bounce, the iShares MSCI Emerging Markets Index (EEM) is down 11% this year.

In fact, as a casual glance at the back page of last week’s Economist confirms, as of last Thursday there were just three stock markets in the world that were in the black in US dollar terms in 2011. And the third, Malaysia, has since slipped into the red.

So with that, let’s look at the only two stock markets in the world showing a profit this year…

1. Indonesia
Few markets in the world—except for maybe Brazil—have enjoyed as much of a turnaround in investor sentiment as Indonesia. Overall, it been the hottest global stock market since stock markets bottomed in March 2009.

As the world’s fourth-largest country with a population of 240 million, Indonesia boasts a young-and-growing population. Jakarta, the nation’s capital, is expected to be the largest city in the world within two decades.

Once the sick man of South Asia, economic reforms initiated in 2004 have helped make it official Indonesian policy to add another “I” to the “BRIC” (Brazil, Russia, India and China) acronym.

Indonesia is one of the few countries that emerged from the “Great Recession” relatively unscathed, registering 4.5% growth, the third highest after China and India. Indonesia also boasts a debt-to-GDP ratio of just 26%—about one third of the level of many developed nations.

The current government also has made great strides in stamping out corruption and making the country attractive to foreign investors—many fleeing soaring costs in coastal China.

The threats of a global double-dip recession notwithstanding, Indonesia’s economy continues to do well. Exports in June soared by 49.35%, and the International Monetary Fund (IMF) expects the economy to expand 6.5% this year.

So, it’s no surprise then that Indonesia is the single best-performing global market of 2011, with the Market Vectors Indonesia ETF (IDX) more than 8% this year.

NEXT: 2. Thailand


2. Thailand
Since its economy was crushed in the Asian currency crisis of 1998, Thailand has staged an impressive comeback, transforming itself into a magnet for foreign investment.

Thailand is positioning itself as a leading destination for multinationals that are abandoning China. Many European, US, and Japanese companies are moving factories to Thailand from China to avoid labor strikes, higher prices, corruption, and the generally unwelcome atmosphere of the Beijing government.

US giants Ford and General Motors last year announced plans to expand their production facilities there. Japan’s Mitsubishi Motors also has assembly plants in Thailand, and Toyota is making the country the company’s export base for all of Asia and the Middle East.

Thailand is also simply a better deal. The annual salary for a Honda worker can run as high as $4,500 to $5,500 in China. Salaries are about one-third lower in Thailand.

Thailand’s economy was on fire in 2010, with the country recording a growth rate of 8%. That made it one of the fastest-growing economies in Asia, even faster than Indonesia.

Thanks to rising inflationary pressures, the Thai central bank turned hawkish, raising its benchmark rate eight times in nine meetings since July last year.

But thanks to weakness in the car and electronics sector after Japan’s earthquake, the central bank may have unwittingly overshot its target, as the Thai economy surprisingly contracted 0.2% in the second quarter. As a result, economic growth forecasts for 2011 have been reduced to 3.5% to 4%.

Thailand’s new government has pledged a range of populist measures to boost growth and increase incomes. As a result, the government is putting pressure on the central bank to hold or even cut interest rates to help business.

But last week, the central bank held firm, raising its benchmark interest rate by 25 basis points to 3.50%, marking the ninth increase since July 2010.

The iShares MSCI Thailand Investable Market Index Fund (THD) is up almost 4% this year.

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