A Stealth Recovery in Emerging Asian ETFs?

NEW YORK (ETF Expert) -- There has been so much negativity with regard to emerging Asian equities over the last 12-18 months. Some of it has been attributable to concerns of a "hard economic landing" in China, while some of it has been due to fears regarding Europe's recession and debt crisis.

Nevertheless, U.S. equities are at the higher end of the S&P 500's trading range (1278-1420). With one of my favorite emerging growth investments in iShares MSCI Malaysia ( EWM) logging respectable year-to-date returns, I decided to check up on the progress of 10 of the most popular emerging Asian ETFs and their year-to-date percentage returns (as of July 30).

They are:

iShares MSCI Philippines Index Fund ( EPHE), 27.1%

Market Vectors Vietnam ETF ( VNM), 21.3%

iShares MSCI Thailand Index Fund ( THD), 14.9%

iShares MSCI Malaysia> ( EWM), 7.5%

WisdomTree India Earnings ( EPI), 6.6%

SPDR S&P Emerging Asia Pacific ( GMF), 3.5%

iShares MSCI China ( MCHI), 1.3%

SPDR S&P China ( GXC), 1.1%

Market Vectors Indonesia ( IDX), 0.8%

Guggenheim China Small Cap ( HAO), -2.3%

By comparison, the SPDR S&P 500 ( SPY) has a return of 9.7%.

Only three of the Asian ETFs have out-hustled the SPDR S&P 500 through the end of July. On the other hand, 80% of these ETFs demonstrated positive 50-day slopes that are, by definition, uptrends. The Thailand, Malaysia and the Philippines ETFs have not only had strong year-to-date performance showings, but they currently have positive slopes; five other ETFs have turned a positive slope corner for the first time since March.

Using the 50-day slope, Guggenheim Small-Cap China and Market Vectors Vietnam are the only exchange-traded trackers in downtrends. Still, VNM managed to post the strongest percentage gains on the list.

Will the uptrends last? They may, in fact, be somewhat tenuous.

For instance, the current price of SPDR Emerging Asia is above a 50-day moving average. What's more, the slope is not only positive, but it has been rising since early June.

That said, GMF last demonstrated a positive, rising slope at the start of the year. Then, 10-year Treasuries yields in key eurozone nations were falling; today, they remain stubbornly high at unsustainable levels.

It follows that Emerging Asia ETFs are likely to take cues from a variety of upcoming data points.

One, the European Central Bank will need to purchase more sovereign debt. Not only do the overwhelming majority of economists, money managers and institutional traders expect it. There's little hope for stocks of any region without the expected stimulus.

Second, policy easing in China needs to have verifiable benefits. For example, China's recent five-month high on its "Flash" Manufacturing PMI needs confirmation. Moving from contraction to expansion in Chinese manufacturing will be key in the weeks and months ahead, not only for the domestic economy, but for neighboring Asian emergers that profit from regional trade.

For some of my clients, I am comfortable purchasing iShares Malaysia on the strength of the country's fundamentals and technicals today. Malaysia enjoys low inflation, solid domestic growth and remarkably low unemployment. Meanwhile, the ETF sports a 3.8% yield that rivals many dividend funds. Moreover, the current price for EWM is above a 50-day and a 200-day trendline.

By the same token, every asset and every asset class can depreciate rapidly. I do not take chances with client portfolios. It follows that every buy decision comes with a firm understanding of the conditions under which I would sell.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

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