Emerging Market Funds/ETFs Starting To Look Cheap (CHN, EWM, LDF, MSF, RAF, TAO, TRF, IF, EZA, CH)

Every day we cover many stocks at the end of the day which are hitting new 52-week lows.  Very rarely do we include ETF’s or closed-end mutual funds in the coverage on that list.  But what is becoming amazing is the daily reckoning we are witnessing where the 52-week low list is dominated by emerging market instruments that trade on the NYSE or AMEX as ETF’s and as closed-end funds.  The list is becoming so staggering that you wonder just were the money really is going.  The US dollar is getting some strength finally, but the markets in emerging markets are getting pounded daily in these instruments. 

We searched for funds and ETF’s in emerging markets from Eastern Europeto Russia to Asia to Africa to South America… and the actualsell-off from highs is starting to look amazing.  We haven’t even had aglobal economic crisis that hit Asia like we did in 1998.Interestingly enough, much of this may be solely on the global growthslowdown and a flight to quality.

What else is interesting is that chasing inflows and outflows for investorsin US markets versus emerging markets in real invested dollar terms isstaggering.  To move the market value of the DJIA up 1% in realsupply/demand driven stock markets is massive.  The value of the DJIA’s30 components alone is worth more than $3.5 Trillion on last look.  Itdoesn’t really take $35 Billion worth of net excess and aggregate stockbuying to drive the entire DJIA up 1%, but so the theory goes.  But a $35 Billionrotation into even a basket of emerging markets would create one hellof a market day around the globe.

Below are some of the closed-end mutual funds and ETF’s from emergingmarkets that hit 52-week lows on Friday and we have even shown how farsome of these are off from their stated 52-week highs:

• The China Fund, Inc. (NYSE: CHN) at $28.35, down 47% from $52.97 high
• iShares Malaysia (NYSE: EWM) at $9.32, down 33% from $14.05 high
• Latin American Discovery Fund Inc. (NYSE: LDF) at $22.10, down 39% from $36.23 high
• Morgan Stanley Emerging Markets Fund Inc. (NYSE: MSF) at $16.16, down 54% from $35.45 high
• RMR ASIA REAL ESTATE (AMEX: RAF) at $10.97, down 35% from $17.08 high
• Claymore/AlphaShares China Real Estate (NYSE: TAO) at $15.99, down 42% from $27.57 high

Here are a few others with recognized names which have hit 52-week lowsin recent days or are at least very close to 52-week lows, and here we haveshown Friday’s closing price and how far down these are from stated52-week highs as well:

• Templeton Russia and East European Fund Inc. (NYSE: TRF) at $45.62, down 41% from $78.00 high
• Indonesia Fund Inc. (AMEX: IF) at $8.69, down about 38% from $14.00 high
• iShares MSCI South Africa Index (NYSE: EZA) at $53.47, down 30% from $76.90 high
• The Chile Fund Inc. (AMEX: CH) at $16.10, down about 33% from $24.00 high

If we were allowed to go on and on, this list of near-low emerging market ETF’s would go on and on as well.

Markets, particularly emerging markets, never die off permanently andindefinitely.  Many investors use these funds for their IRA’s and forlong-term speculation.  While troubles are abound in Afghanistan, Iraq,Georgia, Sudan, and other great destinations, remember the longsteadfast advice attributed to Templeton’s Mark Mobius: "Invest whenthere is blood in the streets." 

As far as where these trade in the days and weeks ahead is anyone’s guess.  Most investors start falling in love with emerging markets after they have made massive runs and when they look stable.  It takes those with guts and foresight to begin investing in these after they have seen major sell-offs.  Closed-end funds can also trade at huge premiums or discounts their net asset values, and we won’t dare make the analogy these markets are cheap just because they have sold off so much.  But all of these instruments do track markets rather than just a couple stocks and as we noted, those markets never stay down or out of favor forever.

We have started covering some of these issues for long-term investors and here are some of the recent articles:
Africa: The Final Emerging Market Frontier
On the Russian military action against Georgia
China, heading to recession?

Jon C. Ogg
August 18, 2008