Three of 2012's Most Disappointing Emerging Markets ETFs
Broadly speaking, 2012 has been a good year for emerging market ETFs.
As early as early February, ETFs tracking Indonesia were showing laggard signs and that is exactly what they have been this year. In the case of IDX, the ETF is up almost 2.5% year-to-date, but that is nowhere the returns offered by ETFs tracking Malaysia, the Philippines, Thailand, and the aforementioned VNM.
There are some cautionary tales regarding the Indonesian economy, Southeast Asia's largest. Like many emerging markets, Indonesia is home to decrepit infrastructure. For now at least, Indonesia is on the India infrastructure plan, which is short on action. Second, there are some signs of a property bubble. The last time Indonesian real estate reached bubble heights was in 1998 right before the Asian financial crisis.
Still, a bull case remains for Indonesia and IDX. The economy is expected to grow 6.4% per year from 2013 through 2017, the highest growth rate of the ASEAN nations, according to the Jakarta Post.
Additionally, the Indonesian economy has done something that would make even China green with envy: Increase domestic consumption. Domestic consumption accounts for nearly two-thirds of Indonesian GDP.
PowerShares Golden Dragon China Portfolio (NYSEARCA:PGJ)
The PowerShares Golden Dragon China Portfolio is a disappointment relative to its peer group as the ETF is down almost 5.3% this year. That loss is bad on its own, but it looks worse when measured against an almost 13% gain for the iShares FTSE China 25 Index Fund (NYSEARCA:FXI), an almost 18% jump for the iShares MSCI China Index Fund (NYSEARCA:MCHI) and a 16.2% gain for the SPDR S&P China ETF (NYSEARCA:GXC).
What has bitten PGJ is its exposure to small-cap growth names (an allocation of 10.6%) and its exposure to Chinese Internet names. For example, Baidu (NASDAQ:BIDU), Sina (NASDAQ:SINA), and NetEase (NASDAQ:NTES) are down an average of 12% this year and those three names combine for almost 18% of China's weight.
There is hope for PGJ. The Chinese economy is rebounding in earnest and there is something to be said for controversial stocks, of which Chinese Internet names fit the bill. When the darkest clouds have passed, controversial stocks can rally in significant fashion. That means there could be upside in store for PGJ in 2013.
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