U.S. Markets closed

3 Country ETFs May Suffer as Oil Springs Higher

Sanghamitra Saha
HPT vs. HCP: Which Stock Is the Better Value Option?

The year 2018 can easily be attributed to the crude bulls. WTI crude ETF United States Oil USO and Brent crude ETF United States Brent Oil BNO have gained about 16% this year. Reduction in supplies thanks to OPEC output cut deal and crisis in Venezuela initially boosted the price. And now U.S. President Donald Trump’s declaration of putting an end the Iran nuclear deal and impose sanctions are likely to cause further supply crunch and favor global oil prices.

While the strength bodes well for a host of oil producing countries, it acts as a headwind oil-importing or oil-consuming nations. Higher oil prices would weigh on the GDP growth of those countries as imports will now be costlier. It will lead to widening trade deficits, lower output and higher inflation in these countries (read: 4 Country ETFs That Should be Beneficiaries of $70 Oil).

In this regard, we have highlighted a few country ETFs that could see stressful trading in the months ahead should oil price rise or remain above $70 per barrel.

iShares India 50 ETF INDY

India is almost entirely dependent on imports to back its oil needs. Already, the country has been witnessing a rise in oil import bills thanks to an uptick in global crude oil prices. This January’s oil import cost jumped by a huge 46% year over year -- the highest monthly rise in the past year.

Though the fundamentals of Indian economies are pretty strong right now, still higher oil prices and a strong greenback could put pressure on this fund in the near term. The fund tracks the Nifty 50 Index which looks at the 50 largest publicly traded Indian companies (read: Should You Buy India ETFs on Strong GDP Forecast?).

iShares MSCI Turkey ETF TUR

Normally, Turkey’s 90% of the crude requirements are satisfied by imports. Iran is Turkey’s one of the biggest crude oil exporters. Now with the United States ending the Iran nuke deal and imposing sanctions, Iranian crude buyers probably have to suffer in the coming days. However, the country is striving to reduce its energy imports.

For example, Turkey's energy imports declined 28.2% in 2016 from 2015. Still, the country is suffering from higher inflation. The government is asking banks to lower interest rates to promote lending to the economy. Its currency lira hit new record lows against the U.S. dollar. Against this backdrop, a $70-oil is a negative for Turkey investing (read: Are Good Times Over for Emerging Market ETFs?).

iShares MSCI Japan ETF EWJ

Japan was the second-largest net importer of fossil fuels in the world in 2012, after China. The Fukushima nuclear disaster in 2011 led the country to move to oil and natural gas, per eia.com. Japan's liquefied petroleum gas (LPG) imports from the United States probably doubled in 2017. So, the country, though much stable from a currency and economic point of view, may face some troubles from the crude price jump.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ISHARS-JAPAN (EWJ): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
US BRENT OIL FD (BNO): ETF Research Reports
ISHARS-SP INDIA (INDY): ETF Research Reports
ISHRS-MSCI TURK (TUR): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report