With the MSCI Emerging Markets Index down about 14 percent this year, positioning the widely followed emerging markets benchmark for its third consecutive annual loss and fourth in five years, getting excited about developing world equities and exchange traded funds is increasingly difficult.
Focusing on various regions of the developing world can cloud investors' mood even more. For example, the iShares S&P Latin America 40 Index (ETF) (NYSE:ILF), thanks in large part to struggling Brazilian stocks, has tumbled about 25 percent year-to-date.
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Emerging Asian Markets
ILF's Asia equivalent, the iShares MSCI Emerging Markets Asia ETF (iShares Inc. (NYSE:EEMA)), has been less bad with a year-to-date loss of 13 percent. No investor should be excited by a 13 percent slide in less than nine months, but Emerging Asia could be the one corner of the developing world currently offering opportunities to investors.
Arguably, EEMA's 13 percent slide this year is not horrific when considering the ETF allocates over a third of its weight to China and another almost 8 percent to Malaysian and Indonesian stocks, two of this year's worst-performing markets, regardless of region.
Federal Reserve's Influence
Emerging Asia could also be a region to watch for, believe it or not, positive reasons if the Federal Reserve boosts interest rates this week.
In addition, with most countries in emerging Asia running a current account surplus and possessing sizable foreign currency reserves, I believe emerging Asia could be better positioned to withstand a Fed tightening cycle than other emerging markets. This dynamic has been evident in the relative resilience of emerging market currencies, an important determinant of overall return for dollar-based investors, said BlackRock Global Chief Investment Strategist Russ Koesterich in a recent note.
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Net Commodities Importers
Another potential selling point for Emerging Asian economies, though it is one markets have largely glossed over this year, is the fact that most of the region's major economies are net commodities importers. That means tumbling commodities prices should be a net positive for a country like India, which has previously run high current account deficits due to substantial importing of commodities.
The iShares S&P India Nifty 50 Indes Fund (NASDAQ:INDY) tracks an index comprised of the 50 largest Indian companies and is down 9.2 percent year-to-date. That is nothing to get excited about, but INDY's 2015 showing is slightly better than the comparable China ETF and vastly superior the equivalent Brazil and Russia ETFs.
Commodities And Emerging Markets' Relationship
Finally, many investors assume thatcommodities and emerging markets go hand-in-hand.
"In fact, most of the countries in Asia, including China and India, are large commodity importers. They benefit when commodity prices decline. This is in contrast to the situation in places like Brazil, a large exporter of raw materials, added Koesterich.
India is EEMA's fourth-largest country allocation at a weigh of 12.3 percent.
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