Emerging markets have not been performing the way they have in many past bull markets. Most investor interest and direction from Wall Street strategists decided earlier this year that the U.S. and developed markets would likely treat investors better than emerging markets. The problem is that you know strategists and forecasters will, as usual, miss the bottom and only recommend that investors enter into emerging markets long after the safety bell has been rung.
24/7 Wall St. wants to know if it is yet safe to begin tip-toeing back into emerging markets. The BRIC investors of Brazil, Russia, India, and China now have to decide between investing in BRICs or MINTs – Mexico, Indonesia, Nigeria, and Turkey. Even this are not without risk.
The emerging market basket seems to have stabilized, sort of. The iShares MSCI Emerging Markets (NYSEMKT: EEM) remains the dominant go-to basket for international investors looking for broad emerging market exposure. It is one the kings of all ETFs as well, with some $36 billion in total assets under management. One problem is that its 800 stock holdings have a high dominance in China and elsewhere in Asia rather than being capped and spread evenly among all emerging and frontier markets. That being said, the iShares MSCI Emerging Markets ETF trades at $41.61, against a 52-week range of $36.16 to $44.27, and it’s down by less than 1% so far in 2014.
Russia seems to remain as the current lynchpin in emerging markets, for now. First and foremost, emerging market investors are likely most concerned about Russia and Ukraine. After all, Vladimir Putin seems unphased by international pressure and sanctions — to the point that it seems he is willing to tank the economy today for a territorial land grab’s advantages for decades ahead.
The Market Vectors Russia ETF (NYSEMKT: RSX) lost another 1.3% on escalated violence in Eastern Ukraine on Friday. At $22.29, it’s down nearly 23% this year. Its 52-week range is $20.86 to $30.25. The Templeton Russia and East European Fund Inc. (NYSE: TRF) managed to gain 0.5% to $12.79 against a 52-week range of $12.00 to $15.71, yet the Closed-End Fund Association shows that this closed-end fund trades at more than a 10% discount to its Net Asset Value.
Is China still the growth engine of the world? China is supposed to pass up the United States in its economic size in the coming decade. The problem is that its growth is often said to be manipulated by skeptics and market pundits. Its growth has also been far less enthusiastic compared to what is needed to keep the ball rolling for China’s next generation of workers. Reports of entire cities and industrial complexes being built and remaining empty are still easy to find.
The iShares China Large-Cap (NYSEMKT: FXI) is at $35, against a 52-week range of $31.35 to $40.32. The closed-end Templeton Dragon Fund, Inc. Com (NYSE: TDF) trades at $24.58 against a 52-week range of $22.51 to $28.29; yet the Closed-End Fund Association shows this closed-end fund’s value at a sharp 11.5% discount to its Net Asset Value.
Is India REALLY back open for business? Barron’s featured India on the cover story this weekend as its feature story — well over 2,000 words worth of selling the nation to investors. The problem here is that the best time to buy would have been back in 2013 when we were covering the Indian currency crisis.
To prove a point about strategists missing the bottom, the WisdomTree India Earnings (NYSEMKT: EPI) is now close to a 52-week high and up close to 50% from its bottom. At $19.20, its 52-week range is $12.99 to $19.53. Even the troubled India Funds, Inc. (NYSE: IFN) has recovered close to its 52-week high. At $22.25, its 52-week range is $16.88 to $23.49, and the Closed-End Fund Association lists the closed-end fund’s price trading at a discount of 10.5% to its Net Asset Value.
Is Brazil stealthily coming back online for business too? Brazil has been a great opportunity, followed by persistent disappointment. The nation has become anti-business after being pro-business for years, and ultimately the socialist pressures may realize that global investment capital will ultimately land in the nations that treat the capital the best. The nation still has massive tariffs — remember that $1,500 iPhone and the $1,850 PlayStation4? S&P even downgraded Brazil’s credit rating as recently as March.
The iShares MSCI Brazil Capped (NYSEMKT: EWZ) has already recovered handily to $48.48, after a 3.5% rise on Friday, and the 52-week range is $38.00 to $56.18. Petróleo Brasileiro S.A. (NYSE: PBR), or Petrobras to investors, remains a continual disappointment, but even it has begun to recover handily despite how far down the line its common stock investors are. A gain of 6.2% on Friday took it to $14.61, and its 52-week range is $10.20 to $19.65.
And what about all those MINT nations of Mexico, Indonesia, Nigeria, and Turkey?
Is the water finally safe to drink in Mexico? Many Americans are still scared that Mexico is more dangerous than Baghdad and that corruption at the local level will eat up any returns at the investor level. Yet the iShares MSCI Mexico Capped (NYSEMKT: EWW) trades at $64.57 against a 52-week range of $57.69 to $74.18.
Indonesia’s election brought hope, followed by lofty valuations. The iShares MSCI Indonesia (NYSEArca: EIDO) trades at $27.70 against a 52-week range of $21.06 to $36.48 and is up some 21% so far in 2014.
Nigeria remains one of the most promising nations in Africa for investors. Its natural resources are attractive to American and European companies alike, but the corruption risks are now coming with risk of more and more violence. The Global X Nigeria Index ETF (NYSEMKT: NGE) has yet to catch on with investors due to thin trading volume. Its price of $14.89 compares to a 52-week range of $13.51 to $16.82. This ETF is only about a year old.
Isn’t Turkey another hotspot for geopolitical risks? National riots and protests against the government have isolated Turkey’s rulers from the wide-open arms of diplomats and investors alike. Turkey even had to aggressively defend its own Lira currency at the expense of its economy. The iShares MSCI Turkey (NYSEMKT: TUR) ETF has recovered to $53.99 against a 52-week range of $40.03 to $77.40, and this ETF is up over 13% so far in 2014. The Turkish Investment Fund, Inc. (NYSE: TKF) closed-end fund dates back to the early 1990s and trades at $11.41 against a 52-week range of $9.50 to $19.92.
Again, emerging market strategists will only tell you to invest after the safety bell has been rung loud and clear. Perhaps the one key strategy to consider for investing in emerging markets and the pre-emerging frontier markets is to buy when there is blood in the streets, an old adage from Baron Rothschild and one which has been continued by Mark Mobius more recently.
As it turns out, the best times to buy emerging markets have been at the zenith of local panic. At this point the pressure and investing losses flush out weak and confident hands alike. These panic points also force change inside regimes and among the politicians. At some point, the pressure to do the right thing just becomes to great even for most dictators to ignore.