As U.S. markets slipped on hope and pessimism about the potential
from President Barack Obama's economic stimulus package, it's a good idea to keep an eye on emerging markets. For the five trading days ending Feb. 12, the average emerging markets fund we track gained 0.36%.
The real action last week was in the BRIC countries of Brazil, Russia, India and China. Country-specific funds targeting Russian stocks averaged a rebound of 13.8%, while India funds rose an average of 3.2%. The
iShares MSCI Brazil Index Fund
is the only pure, proxy fund for the "B" in BRIC we track. It was up 1.24%. China funds fell 1.3% on average.
Inflows to emerging markets funds totaled $500 million for the week ending Feb. 11, as Russian equity funds observed their biggest weekly inflow since October, according to
Bank of America
strategist Michael Hartnett. Emerging market funds had suffered outflows since June.
Correspondingly, Russia's currency, the ruble, has been weakening for the past seven months, to 36.45 rubles per dollar on Feb. 5 from 23.06 rubles to the dollar in July. Last week, the ruble reversed course, rallying to 34.65 on prospects of higher oil prices and a plan to reduce export tariffs for Siberian oil producers.
The best-performing fund last week was the
Market Vectors -- Russia ETF
, popping 20.9%. The fund's fourth-largest holding, behind oil giants
gained 27.8%. Another winning position,
, which holds a monopoly on long-haul electricity transmission in Russia, jumped 57.8% on news it will be added to the MSCI Emerging Markets Index. Gazprom, which increased 10.5%, plans to continue its $10 billion debt-reduction program this year after eliminating $14 billion in 2008. Plus, the Russian Energy Ministry reported that Gazprom will begin exporting Russia's first liquefied natural gas (LNG) by the end of March, making for a total of 6 million tons of LNG by year-end off Russia's Pacific coastline.
ING Russia Fund
followed in second place, at 15.7%.
The Russia trade is not without risk. If the price of oil slides, earnings of Russian oil companies would suffer as foreign currency reserves are eroded.
India's year-over-year GDP was still growing at an annual pace of 7.6% in the third quarter, better than the 6.2% reading for Russia. Two India funds also made the top 10 list. The
EM Capital India Gateway Fund
returned 5.5%, while the
Nomura Partners India Fund
Topping the worst-performer list, down 5.5% for the five-day period, was the
Emerging Markets Telecommunications Fund
. Don't be misled by the ticker symbol, ETF, this is a closed-end fund, not an exchange traded fund.
So, while phone-company holdings, such as three Brazilian telecoms,
Tele Norte Leste Participacoes SA
Vivo Participacoes SA
Brasil Telecom Participacoes SA
rose 16.3%, 5.6%, and 3.5%, respectively, the fund fell. The net asset value (NAV) rose fractionally as its discount to NAV increased to 12.3% from 6.6%. One of the declining holdings, at minus 9.2% for the week,
Telefonos de Mexico SA
( TMX), reported its fifth consecutive quarter of shrinking profit as customers abandon fixed-line phones in favor of mobile phones and new regulations constrict access fees earned by Telmex for use of its network by other telecoms.
Half of the funds on the worst-performing list target Chinese companies. Until demand picks up in the U.S., Chinese companies exporting products to our shores will continue to be under pressure.
At a loss of 3.9% last week, the
Claymore/AlphaShares China Real Estate ETF
slipped, with its holdings of 87% in Hong Kong and 12% in mainland China real estate operating and development companies.
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Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.