ETFs Offer a Passport to Profits
02/25/2014 10:00 am EST
Bargains in the emerging markets still abound; indeed, with rationality finally setting in, this is a terrific time to do a little bargain hunting in the emerging markets, suggests global expert Benjamin Shepherd, editor of Passport to Profits.
Emerging markets are in much better economic shape today than they were, even just a few years ago, much less during the currency crisis that peaked in 1998.
Foreign exchange reserves are generally much more robust, budget deficits are narrower, if they exist at all, and, so far at least, the full-blown currency war that many were predicting last year isn't likely to breakout.
The most obvious play here is the iShares MSCI Emerging Markets Index (EEM). Covering China (18.8% of assets), South Korea (16%), Taiwan (12%), and Brazil (10.2%), with smaller positions spanning Asia and Europe, the fund is most exposed to any shift in sentiment.
The fund is currently trading at just 10.2 times forward one-year earnings, well below its average, of about 18 times, over the past two decades. On a price-to-sales basis, it is even more attractive valued at just 1.03 times; the last time the index was this cheap on a sales basis was early 2009.
For those who can tolerate a bit more risk, you can also drill down and make more country-specific bets. At this point, my favorite would be iShares MSCI South Korea Index Fund (EWY).
South Korea is something of a special case; despite having a highly developed economy, it is still lumped in with emerging markets, primarily due to the capital controls to help protect its currency, the won.
Since South Korea is included in almost every emerging market index, any time those countries take a hit, South Korea falls with them.
But, given the fact that it has more developed market characteristics than not, it's also usually one of the first to turn. iShares MSCI South Korea is a riskier bet, but it should pay off.
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