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10 Emerging Markets ETFs for 2013


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.

iShares MSCI Thailand Investable Market Index Fund (NYSEARCA:THD): Like so many of the other ETFs on this list, the iShares MSCI Thailand Investable Market Index Fund is coming off a 2012 run that leaves investors to wonder if similar feats can be repeated in 2013. A 2012 gain of 33.5% and closing the year at an all-time high will do that.

The simple answer regarding THD's 2013 fortunes is that a negative performance would represent a break from what is becoming a long-term uptrend. Since the March 2009 market bottom, THD has been one of the best-performing ETFs of any stripe and the fund has nearly quadrupled. Of course, past performance is no guarantee of future returns, but the Thai economy is well-positioned to start the new year.

The country is expected to see GDP growth of 5.2% this year and is sitting on a streak of 56 consecutive quarters of growth, according to Investor's Business Daily. Like the Philippines, Thailand has a debt-to-GDP ratio that would make a developed market blush, in this case under 42%.

Inflation is a concern, particularly after the December report showed an increase to 3.63% from 2.74% in November. That leaves the Bank of Thailand without much wiggle room to lower interest rates.

That leads into the primary issue regarding THD's continued bullishness this year. The Thai economy is export-driven and any slowdown in the global economy can weigh on Thailand. If inflation jumps while exports fall, the Bank of Thailand may not be able to cut rates. On the other hand, Thai stocks are resting at 16-year highs and international investors more than tripled their purchases of Thai equities in December from November.

Regarding THD, from 2009 through today, it can be said that every significant pullback endured by the ETF has represented a buying opportunity. With most signs pointing to another strong year for the Thai economy, THD's pullbacks may be few and far between this year.

Market Vectors Egypt Index ETF (NYSEARCA:EGPT): This is how strong the Market Vectors Egypt Index ETF was in 2012: The ETF posted a gain of 32% despite falling 14.5% in the last three months of the year. For much of 2012, EGPT fought of an array of negative headlines out of Egypt ranging from bloody protests in Cairo to tensions in other Middle East nations to a new political regime that appears hardly more pleasant than the one it replaced.

What EGPT's performance over the last few months of 2012 says is that the ETF was likely bid higher on optimism that Egyptian President Mohammed Morsi would be usher in a new era for Egyptian politics and economics. To this point, that has not been the case.

Morsi has not been a friend of business, and interference by the Morsi administration could impact foreign direct investment and plague Egypt's domestically-focused economy, one that is already suffering from rampant poverty and high unemployment. Speaking of, Egypt has an unemployment rate of about 12%, but that number doubles for the nation's young people. Investors' patience with Egypt may be wearing thin, making EGPT a sell if it falls below support at $12.
No positions in stocks mentioned.

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