3 emerging-market ETFs to buy after the election
Now that the presidential race is over, look to these exchange-traded funds for investment opportunities.
The Standard & Poor's 500 Index ($INX) slid almost 2.4% on Wednesday and another 1.2% on Thursday after President Obama won a second term in office. All 10 S&P 500 sectors slid on Wednesday as the index cascaded to its worst one-day performance since June.
Post-election jitters were not confined to U.S. equities, as marquee ETFs tracking developed markets sank on the day. The Vanguard MSCI Europe ETF (VGK) gave up 1.7% while the iShares MSCI Canada Index Fund slid 1.4% on above average volume.
Looking at emerging-market ETFs, the iShares MSCI Emerging Markets Index Fund (EEM) lost 1.6% on volume that was more than 50% above the daily average. EEM, the second-largest emerging markets ETF, was just one member of the sea of red that was enveloping market ETFs on Wednesday.
There might be a two-fold silver lining for investors looking to grab emerging-market exposure. First, not all ETFs that track developing nations are intimately correlated to U.S. stocks. Second, Wednesday's sell-off could represent a buying opportunity to get involved with select emerging markets ETFs. The following funds look particularly appealing:
iShares MSCI China Index Fund (MCHI)
Lost in all the fanfare of U.S. elections is that Xi Jinping officially becomes China's new president on Thursday. What impact a new Chinese leader has on China ETFs remains to be seen, but it can be said the slump in MCHI and other China funds on Wednesday was surprising.
MCHI lost 2.1%, but this could be the buying opportunity late-comers have been looking for. Not only are there ample reasons why MCHI is superior to the iShares FTSE China 25 Index Fund (FXI), it should be viewed as good news for these ETFs that President Obama won re-election.
The reasoning is simple. Republican challenger Mitt Romney spewed the harsher anti-China rhetoric of the two candidates during the campaign, and some investors viewed him as more likely than Obama to something about China's alleged currency manipulation.
iShares MSCI All Peru Capped Index Fund (EPU)
Alright, so the iShares MSCI All Peru Capped Index Fund did not fall all that much on Wednesday. A drop of less than 0.6% on light volume is not to say the bears controlled this fund. However, there are some interesting things to note about EPU.
First, the ETF easily outperformed EEM and the iShares MSCI Brazil Index Fund (EWZ) on Wednesday. Second, in the process of doing so, EPU actually closed fairly close to its intraday high while many emerging markets ETFs settled closer to their lows of the day. Finally, gold ETFs inched higher amid the Wednesday equity sell-off and silver ETFs were only modest losers. Peru is a major producer of both precious metals, implying that if gold's safe-haven status is reborn, EPU could catch a bid through the end of the year.
iShares MSCI Chile Investable Market Index Fund (ECH)
Like EPU, the iShares MSCI Chile Investable Market Index Fund tracks a South American nation viewed primarily as a materials play by foreign investors. In Chile's case, the metal it is most known for is copper, perhaps the epitome of a risk on trade. To its credit, ECH's Wednesday decline was inline with EPU's at about 0.6 percent.
Given China's 800-pound gorilla status in the copper market, a rebounding Chinese economy would be good news for the Chilean economy. That said, Chile's expected GDP growth rate of 4.3 percent this year is superior to the Latin America regional average of 3.7 percent growth.
ETFs such as FXI and MCHI could be the tail that wags ECH's dog, but is also worth noting that the Chile ETF has very little correlation to U.S. equities. Over the past three years, ECH's correlation to the SPDR S&P 500 (SPY) is just 0.34, according to State Street data.
For more on emerging-market ETFs, click here.
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