The Five Best-Performing Country ETFs

09/09/2010 10:00 pm EST

Focus: ETFS

Thomas Aspray

, Professional Trader & Analyst

Despite the recent rebound in the major US averages, most are either just up or down slightly for the year. Euro zone investors have fared even worse overall as the iShares MSCI EMU Index (EZU), which represents all 11 euro zone countries, is down over 13%. However, there have been some bright spots around the world, and in this article, I will take a look at the top five best-performing country ETFs, each of which is up over 17% so far this year.

Figure 1


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Thailand’s economy has been very strong so far in 2010, growing at a rate of 10.6% in the first half as exports were very strong, primarily due to China. There seems to be some agreement amongst economists that this rate will slow dramatically in the second half of the year, which could put some pressure on the Thai baht as it has been very strong. Technically, the weekly chart of iShares MSCI Thailand (THD) looks quite positive and this ETF is up over 33% so far this year (through 9/3/10). The weekly continuation pattern (see lines 1 and 2) was completed early in the year and then the breakout level (see arrow) was retested in May. This low provided the basis for the current trading channel with the upper boundaries now in the $64-$66 area.

The On-Balance Volume (OBV) is a cumulative total that is calculated by adding the volume if price closes higher and subtracting the volume if price closes lower. The OBV will often lead prices higher or lower. (For more on the OBV, see this recent lesson.)

For THD, the OBV moved decisively above its WMA in April 2009 and has been making higher highs since. The OBV surged early in 2010 and then consolidated before breaking above resistance (line c). It is currently in a very powerful uptrend and shows no signs of topping. In investing or trading, the single-country ETFs volume is important, and one must use limit, not market, orders. The average volume in THD is 265,000 shares, which is alright for individuals, but too low for many institutions.

Figure 2


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The iShares MSCI Chile ETF (ECH) is up over 28% for the year. The higher volatility is evident in this chart even if we did not have the huge drop on the day of the “flash crash” as the low was supposedly $27.27 (point 1). Without this data point, the first half of the year would look like a normal continuation pattern that was resolved when ECH surpassed resistance at line a. In fact, much of ECH’s gain has come just recently as it has risen from the June 30 lows of $56.47 to over $70. The OBV has made a series of higher highs, line b, which is consistent with long-term accumulation, a bullish sign. The volume over the past six weeks has been especially strong and the OBV looks ready to break out above resistance. Even though the massive earthquake early in the year temporarily stalled Chile’s economic recovery, it did not last long. In just-released numbers for July, the monthly economic index, or Imacec, surged 7.1%, which was above analyst’s estimates of 6.5%. This could cause the central bank to raise its estimates for 5%-6% growth in 2010.

Lesson Continues on Page 2

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Figure 3


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The iShares MSCI Malaysia ETF (EWM) is one we have followed regularly along with the iShares MSCI Singapore ETF (EWS). This ETF completed a nice bottom formation in April 2009, line 1, as the move above resistance was confirmed by a strong surge in the OBV. The strong trading channel on the weekly chart shows several orderly pullbacks and it was important that the decline in May held well above the February lows. Back in July, I noted here that it was on the verge of breaking out to the upside, and after clearing the resistance at $12.10, it has surged well above the $13 level.

Since the start of the year, EWM is up over 25% and the upper trend line is now at $14. The OBV moved through weekly resistance, line c, two weeks ago, which is considered a very positive sign. Economic growth did slow slightly in the second quarter, but still the gross domestic product grew at an 8.9% rate. This growth justifies the strong appreciation of the Malaysian ringgit, which recently hit a 13-year high versus the US dollar.

Figure 4


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The iShares MSCI Peru ETF (EPU) is a fairly new ETF, and so far, volume is light, averaging around 120,000. I have used a daily chart to give you a slightly different look at the recent trading. In April, EPU failed to move above the previous highs at $35.95, which was a short-term negative. From the April highs to the “flash crash” lows, EPU dropped from $35.50 to $29.79 but then began to edge higher throughout the summer (see line b). The OBV moved through resistance, line c, in July, and started to lead prices higher. In early August (point 1), the breakout failed and EPU came back to test its uptrend, point 2. The strength of the OBV indicated support would hold and the sharp rally in EPU over the past week has been accompanied by strong volume. Peru’s GDP gained 11% in June, and for the year, recent estimates were at 7.5% after just 1% growth in 2009. The increased private and public investment, much of which is targeted towards increasing exports, has been credited for the growth. EPU is up 17.3% for the year.

Figure 5


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The last country ETF we will review is the iShares MSCI Turkey (TUR) as it is up 17.1% so far this year. This ETF completed a nice bottom formation in April 2009 (dashed lines) before doubling in the next six months. The weekly chart shows that a broad trading range has been in effect for most of the year, lines a and b. The support at $44.15, line b, goes back to November 2009, and it was tested but not broken during the “flash crash” session, point 1. The close last week was just below major resistance in the $63.60 area, line a. The OBV broke out of its trading range, lines c and d, in late July. Currently, the OBV now looks very strong, suggesting that TUR will be able to break out of its trading range, which would give targets in the $85 area. Turkey’s economy is expected to expand by 6.8% this year, while recent numbers suggest inflation has declined to 8%. However, some further challenges exist as unemployment is at 15% and the current account deficit is running at 5% of GDP.

These five country ETFs, in spite their strong performance already this year, continue to look strong from a technical point of view. The economic data have supported the gains in the ETFs this year. In 2009, when the fundamentals were dismal, these ETFs gave clear technical signs that they had bottomed. Turkey is currently the least overextended on the upside. There are many other countries that have also done well this year and could become the leaders in the fourth quarter and in early 2011. Personally, I monitor quite a few of the various country funds and find that most trade quite well technically. Traders and investors should closely look at the average volume of any ETF you are considering and always use limit orders to both buy and sell.

Tom Aspray, professional trader and analyst, serves as Trading Lessons editor for MoneyShow.com. The views expressed here are his own.

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