Stealth rallies for emerging markets ETFs

Investors are showing renewed interest in funds focused on Colombia and Poland.

By Benzinga Jul 23, 2013 1:45PM

It may not be entirely safe to swim in emerging markets waters again, but it is clear ETFs tracking developing world economies are acting less bad.

Following savage declines at the hands of tumbling currencies, slowing Chinese growth and investors' repudiation of developing world bonds, some emerging markets ETFs have bounced higher in recent weeks.

Using the Vanguard FTSE Emerging Markets ETF (VWO) as the benchmark as it is the largest emerging markets ETF by assets, that fund notched its June bottom on June 24 at $36.50. VWO has since rallied 9.3% as investors have been tempted by the notion that emerging markets stocks are inexpensive, too oversold to ignore or both (Benzinga).

VWO and comparable funds are not the only ones that have delivered impressive performances in recent weeks. Just look at the following, often overlooked ETFs whose recent gains may be harbingers of things to come.


Believe it or not there are now three ETFs tracking South America's second-largest economy from which investors can choose. The elder statesmen is the Global X FTSE Colombia 20 ETF (GXG). The overlooked play is the Market Vectors Colombia ETF (COLX) and the new kid on the block is iShares MSCI Colombia Capped ETF (ICOL).

Colombian stocks were once Latin American juggernauts, but that story took a noticeable turn for the worse this year due in large part to the falling peso and the country's status as a major raw materials producer. Falling bond yields and a delay to Colombia's plan to allow pension plans there to invest overseas have boosted theses ETFs in recent weeks (Benzinga).

Over the past month, COLX, GXG and ICOL have gained an average of 8.7%.

Like Colombia was in South America, Poland was once a regional standout in its own right (Benzinga). Not just in Eastern Europe, but all of Europe. The country skirted recession during the global financial crisis and it is not a eurozone member, meaning it is remained out of the sovereign debt crisis fray.

Slowing growth has caught up with Poland, weighing on the iShares MSCI Poland ETF (EPOL) and the Market Vectors Poland ETF (PLND) in the process. However, the country is not sitting idle. Earlier this month, the central bank there lowered rates to a record low of 2.5%. Since November, Poland has been a rate-cutting campaign that would make any developed market blush, shaving 225 basis points off borrowing rates.

Last week, Poland unveiled plans to waive fiscal safety rules that prohibit increasing the budget deficit once public debt tops 50% of gross domestic product in a bid to boost consumption and economic growth, Bloomberg reported.

PLND is up 5.7% in the past month while EPOL is higher by 5.6%. The key to further upside is how Polish fiscal and monetary policy impacts financial services firms there.  

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