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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 Malaysia Index Fund (NYSEARCA:EWM): With a 2012 gain of 12.5%, the iShares MSCI Malaysia Index Fund appears to be somewhat of an emerging markets laggard, particularly as far as ETFs tracking Southeast Asian nations go. That does not mean EWM is not worth a look in 2013. Actually, the opposite is true.

This year is an election year in Malaysia and Prime Minister Najib Razak, the incumbent, and his Barisan Nasional coalition are facing what is expected to be one of Malaysia's most hotly contested elections.

So what is a politician to do when he wants to retain office? Open up the government coffers to stimulate the economy. That is what Razak is trying to do with the $444 billion Economic Transformation Program, which is aimed at bolstering domestic consumption and reducing poverty. However, there may be limits to the government largess. The government does not want to exceed a debt-to-GDP level of 55%, but with the number currently in the 53% to 54% area, the spending to win elections scenario may be put to the test this year in Malaysia.

Note two interesting factors about EWM. It has a trailing 12-month yield of 3.66% and a beta of just 0.57 against the S&P 500, according to iShares data.

iShares MSCI Mexico Investable Market Index Fund (NYSEARCA:EWW): The iShares MSCI Mexico Investable Market Index Fund was one of the juggernauts among Latin American ETFs in 2012 with a gain of 27.5%. There are reasons why EWW's uptrend can continue, though the most prominent one is how much the US economy improves.

EWW and the Mexican economy have already been benefiting from an influx of manufacturing jobs from China. Rising wages in China have sent some manufacturing jobs to Mexico and due to higher fuel prices, some US firms have favored production of goods in Mexico over China due to the former's proximity to the US.

Key to EWW's outlook is how much recently passed labor reforms will immediately impact the Mexican economy. Mexico has had issues with poor job creation and high unemployment in the past, but efforts to improve the domestic economy could mean a boost to domestic consumption. That could be a potential catalyst for EWW, which allocates more than 38% of its combined weight to staples and discretionary names.

SPDR S&P China ETF (NYSEARCA:GXC): This list probably would not be complete without at least one China ETF and the inclusion of such a fund is made all the more necessary by the impressive performances notched by many China funds over the last few months of 2012.

For much of 2012, China ETFs provided investors with frustration as market participants debated the ability of policymakers in Beijing to engineer a soft landing for the world's second-largest economy. Slowing growth, dividend cuts by Chinese banks (financial services are often excessively weighted in China ETFs), geopolitical controversies, and negative headlines regarding some Chinese small-caps were among the issues to confound investors looking for China exposure.

China's new leader, Xi Jinping, is working to improve confidence in the Chinese economy and his efforts are being helped by a spate of positive economic data to close 2012 that shows China is in turnaround mode.
No positions in stocks mentioned.

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