Weekly ETF Winners – EPHE, EWW, ECH
Stocks have staged a dramatic comeback this week after the Fed-induced selloff sent stocks off a cliff last week.
Amazingly, the Dow Jones Industrial Average has soared nearly 500 points from Monday’s low of 14,551. That’s an impressive 3% rally for the blue chips over the last few days.
But US stocks aren’t the only stocks rebounding this week. In fact, the top three performing non-leveraged ETFs this week are all foreign market ETFs. Let’s take a closer look…
iShares MSCI Philippines ETF (EPHE)
EPHE has racked up gains of 9.4% this week. It’s still down nearly 19% from the 52-week high of $43.22. But the ETF is still up about 25% over the last year. Talk about volatility!
As the name suggests, EPHE gives investors a way to invest in the entire Philippine stock market in a single ETF. The ETF is dominated by financials that make up 41% of the ETF. Industrials make up 24% while telecom, utilities, and consumer staples account for a little over 9% each.
What’s behind EPHE’s great week?
Bargain hunting investors were on the prowl for assets that were hardest hit last week. And EPHE was certainly a lot cheaper in the low $30s per share than when it was over $42 per share recently.
The more important question is – Can EPHE hold onto its recent gains or is this simply a dead cat bounce?
At this point, EPHE faces some serious headwinds from rising interest rates, slowing growth, and investors that are retrenching in anticipation of the end of QE. But if interest rates stabilize, we could see EPHE continue to rebound from oversold conditions in the weeks ahead.
iShares MSCI Mexico Capped ETF (EWW)
Another foreign market ETF with big gains this week is EWW. It’s up 8.6% over the last week.
However, it too is well off its recent highs. Even after this week’s impressive rally, EWW is still down nearly 16% from the 52-week high of $76.23 it reached in April.
EWW (and the Mexican stock market) are dominated by consumer staples (26%) and telecom (20) stocks. In fact, 20% of EWW is composed of a single stock – Latin American telecom giant America Movil.
What’s behind the run up in EWW?
EWW is clearly benefiting from some of the same bargain shopping from investors that helped EPHE’s rise too. And I can’t blame them… EWW looks like a much more attractive investment at $60 per share than it was when it was at $76 a few months ago.
But don’t forget, the outlook for economic and earnings growth in Mexico began to deteriorate rapidly last quarter. If earnings come up short when companies begin reporting 2nd quarter numbers, we could see the selloff in EWW accelerate to the downside.
iShares MSCI Chile Capped ETF (ECH)
ECH generated a solid 8% return over the last week. It was the third biggest gain among non-leveraged ETFs.
It too is rebounding from a massive selloff. However, the downturn in ECH began much sooner than EPHE and EWW. It’s been trending lower since reaching a high of $67.22 in February.
This ETF tracks Chilean stocks. Utilities are the biggest sector with about 24% of holdings. Financials, consumer staples, materials, and consumer discretionary make up 18%, 14%, 12%, and 11% of ECH respectively.
Why the surge in Chilean stocks?
This is clearly a case of rising waters lifting all boats. ECH is benefiting from the investors hunting for bargains in emerging market stocks.
However, I don’t think Chile can sustain these gains. Their economy is dependent on their copper industry. And right now copper prices are at their lowest levels in three years and global demand is expected to remain soft for some time.
Here’s the upshot…
Investors clearly went hunting for bargains in some of the hardest hit emerging markets. It fueled a nice rally in EPHE, EWW, and ECH this week. But I wouldn’t be too quick to jump on the bandwagon. The fundamentals for these ETFs and many emerging markets are deteriorating quickly.
Good Investing,
Corey Williams
Category: ETFs, Foreign Market ETFs, What's Going On?
