All you have to do is look at the exchange-traded funds and closed-end which track the emerging markets and the BRIC nations (and those surrounding the BRICs).  Ugly is not quite the right description and we will explain more after showing just how bad the carnage is.  Greece is no emerging market, but it is on the path to default faster than emerging markets used to default.

The ETFs for the broad emerging markets is not a good signal for their equity markets.  The revolutions of early 2011 did not help, nor did the food inflation, but the economic slowing is taking a hit here left and right.  iShares MSCI Emerging Markets Index (NYSE: EEM) closed down 2.1% at $34.36 and the 52-week trading range is $34.29 to $50.43 (52-week low was Monday).  Vanguard Emerging Markets Stock ETF (NYSE: VWO) closed down 1.75% at $35.20 and the 52-week trading range is $35.13 to $50.92 (52-week low was Monday). 

We have included the most active ETF chart on each from Stockcharts.com at the end of this report.  The data on the BRICs is almost shocking…

BRAZIL

Brazil may have energy independence and the Olympics headed its way, but the implosion there has been massive.  The BOVESPA lost 2.9% of its value on Monday and let’s just say that its high-flyers are now grounded due to more than just weather.  It seems that minerals and forestry are not going to generate cash, just like it missed out on royalties from the term “Brazilian” in personal grooming. 

iShares MSCI Brazil Index (NYSE: EWZ) closed down 2.1% at $50.89 and the 52-week trading range is $50.71 to $81.77 (52-week low was Monday).  Market Vectors Brazil Small-Cap ETF (NYSE: BRF) closed down 3.15% at $37.96 and the 52-week trading range is $37.73 to $63.78 (52-week low was Monday).  iShares MSCI Chile Investable Market Index (NYSE: ECH) closed down 3.8% at $51.16 and the 52-week trading range is $50.92 to $80.38 (52-week low was Monday).  Aberdeen Chile Fund, Inc. (NYSE: CH) closed down 4.9%  at $13.45 and the 52-week trading range is $13.37 to $26.56 (52-week low was Monday).

Other Chinese-focused ETFs getting a beating today are the SPDR S&P China ETF (NYSE: GXC) and the Guggenheim China Small Cap ETF (NYSE: HAO). Even a fund that includes all the BRICs, the iShares MSCI BRIC Index (NYSE: BKF) is losing ground.

Bloomberg is reporting that net outflows from FXI so far this year total $961 million.  The outflow tracks a decline in the forward P/E ratio of the Shanghai Composite Index, which has dropped to 11.6, its lowest level since November 2008.

Tighter monetary policy, including increased bank reserve ratio requirements and higher interest rates, have caused valuations on Shanghai stocks to fall. The funny thing about the drop in FXI is that the fund holds no shares in any Shanghai-traded stock, instead preferring Hong Kong and New York listings. The GXC fund also holds only US- or Hong Kong-listed stocks.

Year-to-date, FXI is down less than -2%, while EWZ is down nearly -7%. GXC is up about 2.5%, HAO is down almost -6%, and is down more than -2.5%.

Both FXI and GXC hold stocks in several state-owned or state-controlled companies. Banks play a large role in the holdings of both funds, with China Construction Bank, Industrial and Commercial Bank of China, and Bank of China all represented in the top ten holdings of both funds.

The top two holdings in both EWZ and BKF are Petrobras and Vale — oil and mining. The fund flows into Brazilian funds are likely tracking investors’ interests in commodities. Brazilian banks are important in EWZ’s top holdings, but don’t figure at all in BKF’s top ten.

The other odd thing about fund flows into Brazil is that the country is also fighting inflation and hot money inflows. The Brazilian currency recently set a 12-month high vs. the US dollar and the inflation rate in Brazil is expected to rise to about 6.3% in 2011 and could rise another 5.2% in 2012. Interest rates in Brazil are now above 12%.

Rising interest rates in China are sending money out of the country. Brazil’s numbers are at least as bad as China’s, yet money is flowing toward Brazil and away from China. Go figure.

Paul Ausick

When you come in after a night’s sleep and read about surprise rate hikes, chances are you would generally think that it would be treated as a financial governor.  If that has been the case, you wouldn’t know it just looking at broader Chinese equity exchange-traded products.  Some of these are actually up so far today and they are all still within striking distance of 52-week highs.

iShares FTSE China 25 Index Fund (NYSE: FXI) is down only 0.3% at $46.18 in late-afternoon trading and the 52-week trading range is $36.24 to $47.99.

SPDR S&P China (NYSE: GXC) is actually up by a few cents at $82.89 in late-afternoon trading and the 52-week trading range is $44.00 to $84.88.

Another fund is up even more today in the Guggenheim China Small Cap (NYSE: HAO).  Its shares are up 0.6% at $30.08 and its 52-week trading range is $22.20 to $33.57.

The Guggenheim China All-Cap (NYSE: YAO) ETF is up 0.3% at $29.51 and the 52-week range is $20.00 to $30.40.

If you saw the reaction so far against how it has treated these key ETFs which follow Chinese stocks, and keep in mind that there is almost no currency fluctuation with China, then maybe it is time to go ahead and have Uncle Ben (Bernanke) get off this zero-rate policy here in the United States.

JON C. OGG

The “YAO” aims to track the AlphaShares China All Cap Index, which tracks the performance of the investable universe of publicly-traded companies of all market capitalizations of companies based in mainland China, although it does note that index members must have a float-adjusted market capitalization initially of $500 million or greater and a market cap of $400 million or greater for ongoing index inclusion.

As of September 30, 2009 the index included 99 securities: approximately 57% in large caps, 33% in mid-caps and 10% in small-caps.  The index member weightings can be found at its index weightings section of the Claymore.com website.

We took a look through the list of constituents and what is different about this ETF compared to many other ETFs in China is that this one directly tracks many of the key companies directly on the exchanges in Hong Kong or in China rather than just the US-listed ADRs.  Many of those ADRs are only available in Pink Sheet-listed securities.  Otherwise, three of the top five index components would not be available to US-holders, and the top 5 constituents account for right about 25% of the entire weighting of the ETF.

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Jon C. Ogg
October 19, 2009

This ETF (HAO) aims to track the performance of the AlphaShares China Small Cap Index, which was designed to track the performance of publicly-traded small cap stocks in mainland China.

According to the launch site, this ETF launched with only 200,000 shares outstanding and it traded 2,800 shares yesterday.  It was also listed as having a 5.32% Bid/Ask premium and has 120 securities in the AlphaShares China Small Cap Index (ACNSC).

This ETF actually is fairly distributed after looking at the holdingsversus the weighting of each.  Many ETF’s tracking specific markets andsectors have a few components making up a large percentage of theentire group.  Of the top 20 holdings below, this only comprises about37% of the entire ETF.

Below is a snapshot of the top 20 holdings, although you can see the full list here.
BEIJING ENTERPRISES HOLDINGS    2.97 %
CHAODA MODERN AGRICULTURE      2.95 %
SINOFERT HOLDINGS LTD                    2.45 %
WUXI PHARMATECH INC – ADR            1.92 %
SHANGHAI JIN JIANG INT’L                    1.89 %
CHINA SHIPPING CONTAINER              1.89 %
NETEASE.COM INC-ADR                         1.88 %
SOHU.COM INC                                         1.84 %
CHINA COMMUNICATIONS SERVICES 1.82 %
PORTS DESIGN LTD                                 1.74 %
CNPC HONG KONG LTD                          1.74 %
JIANGSU EXPRESSWAY CO LTD           1.72 %
TSINGTAO BREWERY CO LTD               1.72 %
DONGFANG ELECTRIC CORP LTD      1.67 %
GUANGDONG INVESTMENT LTD          1.67 %
CHINA SOUTHERN AIRLINES CORP    1.62 %
SINOPEC SHANGHAI PETROCHEMICAL 1.62 %
CHINA EASTERN AIRLINES CO              1.46 %
MAANSHAN IRON & STEEL                      1.45 %
KWG PROPERTY HOLDING                     1.44 %

Jon C. Ogg
January 31, 2008