Select emerging markets exchange traded funds have been ramping higher in recent weeks, but at least one major global bank sees bullish opportunities with some of the most familiar developing economies.
Citigroup’s proprietary value-plus-momentum model continues to overweight China, Russia, South Korea and Taiwan, Shuli Ren reports for Barron’s.
Assets allocated to the largest country-specific ETFs for those nations are a combined $13.9 billion, including $5.8 billion to the iShares China Large-Cap ETF (FXI) and $4.2 billion to the iShares MSCI South Korea Capped ETF (EWY).
Not surprisingly, Russia’s compelling valuations factor into Citi’s overweight rating on the “R” in BRIC, Barron’s reported. Russia’s equity discounts currently border on the deep side. Russia trades four standard deviations the EM average and its forward P/E of five is far cry from the 7.7 10-year average. Russia’s 0.7 price-to-book is about the 10-year average, according to J.P. Morgan Asset Management. [ETFs for the Cheapest Emerging Markets]
China is no slouch when it comes valuation discounts. Stocks in the world’s second-largest economy trade about two standard deviations below the MSCI Emerging Markets Index and nearly a full standard deviation below its own average.
EWY has risen steadily over the past few months as global investors snatched up Korean equities due to low valuations. Buyers have recently been stepping into the ETF as well. EWY has pulled in nearly $200 million in fresh new assets, according to ETF execution firm Street One Financial. [Cash Flows Into South Korea ETF]
Several diversified emerging markets ETFs offer decent combined exposure to China, Russia, South Korea and Taiwan. Among the more notable options are the WisdomTree Emerging Markets Equity Income Fund (DEM) and the iShares Core MSCI Emerging Markets ETF (IEMG) .
Those markets combine for almost 52% of both DEM’s and IEMG’s respective weights.
iShares Core MSCI Emerging Markets ETF
Tom Lydon’s clients own shares of DEM.