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10 Emerging Markets ETFs for 2013

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This is not a bold prediction, but it is reasonable to expect one of 2012's hottest asset classes to stand tall again in 2013.

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Market Vectors Indonesia ETF (NYSEARCA:IDX): From one 2012 disappointment in EWZ to another in IDX. The oldest Indonesia ETF lost just 1.6% last year, but that performance is woeful compared to the returns offered by other ETFs tracking Southeast Asian nations such as the country-specific funds for the Philippines and Thailand.

With 2012 in the books, investors will be looking to see if IDX offers potential for a significant rebound in 2013. In fact, it does. Indonesia is Southeast Asia's largest economy and the fourth-largest country in the world by population. Those factoids do not mean IDX should rise (or fall), but it is worth noting profits are increasing at large-cap Indonesian firms JPMorgan is sounding a bullish tone on the country.

What is crucial to the Indonesian investment thesis is that foreign investors take a proper view of the country, meaning that they must recognize that the country is not as export-dependent as many outsiders think it is. Indeed, exports account for 20% of GDP, but Indonesia is arguably the envy of much of the developing world because its consumers driver 60% of GDP.

The government expects 2012 GDP growth of 6.5% while the World Bank is forecasting 6.3% growth in 2013. A look at IDX's sector lineup, which includes a 12.8% weight to staples names, shows the ETF is intimately levered to the Indonesian consumer story.

iShares MSCI Philippines Investable Market Index Fund (NYSEARCA:EPHE): From a Southeast Asian disappointment in IDX to one of 2012's shining stars in the iShares MSCI Philippines Investable Market Index Fund. EPHE was not only one of the region's best-performing ETFs last year, it was one of the best among all emerging markets funds with a gain of almost 44%. A 44% surge in one year obviously begs the question: Can it happen again the following year?

Obviously, asking for a repeat of a 44% gain is asking a lot, so investors might do well to temper their expectations with EPHE in 2013. However, that does not mean the ETF will not impress again. Actually, the catalysts are in place for another strong year for EPHE.

Those catalysts include soaring GDP growth (7.1% in the third quarter, topping estimates of 5.4%) and a push for an investment-grade credit rating the Philippine government is far from shy about. Should the country's economy continue on its current pace, it is unlikely that even slow-moving ratings agencies will let the country's sovereign rating languish in junk territory much beyond the second quarter.

Another important factor to remember about EPHE and the Philippines is that, as Benzinga reported in January 2012, the country is not intimately dependent on exports to China to drive its economic growth. As the top business process outsourcing destination and the call
center capital of the world, the Philippine economy is far less export-dependent than many think it is.

There are risks, though. The Philippines is home to rampant poverty and over-population. Those are cautionary tales on their own, but a reputation for corruption and graft presents an issue when it comes to attracting foreign direct investment.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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