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Strategic Asia Investment Approach: Market Vectors India Small-Cap Index ETF

Summary Investing in the Market Vectors India Small-Cap Index ETF is one of the most strategic means for investors to profit from India’s economic growth. The earnings of the fund’s top 10 holdings have increased substantially since 2012, yet this has not been reflected in the fund’s price. India’s macroeconomic outlook is extremely impressive, with a projected annual GDP growth of 7.5% for 2016. Consumption in India is rising substantially. This trend is relevant for the entire population, regardless of socioeconomic status. India’s economy is an excellent option for investment in Asia. Having spent a year there collectively studying and volunteering, I was able to witness firsthand the substantial economic growth in the country. India has the world’s largest youth population , a favorable demographic position given China’s again population. This strength in numbers is also edified by population that I would characterize as highly ambitious, and a key driver of the country’s future economic growth. I have determined that investing in the Market Vectors India Small-Cap Index ETF (NYSEARCA: SCIF ) is one of the most strategic means for investors to profit from India’s economic growth. This outlook stems from the collective benefits of low valuation and excellent financial performance. India is an economic gold mine, and the only challenge I foresee is discerning between a good ETF and an excellent ETF. SCIF data by YCharts. The majority of the fund’s top ten holdings have consistently increase their earnings since 2012, yet this has not been reflected in the fund’s price. Moreover, recent financial performance of the fund’s top holdings clearly displays that a reconciliation of the fund’s price is befitting. This fund is certainly undervalued. Valuation: Small-Cap Approach is Most Strategic The fund’s current valuation is extremely low when compared to the iShares MSCI India ETF (BATS: INDA ), thus verifying that the small cap approach is a more strategic means to gain exposure to India. This is verified not only by its valuation, but also an examination of the earnings of the fund’s holdings. The fund’s price has increased substantially since 2014, yet the valuation is still incredibly low. Top 10 Holdings Some highlights of the fund’s holdings, affirming the prestige and upside potential of this fund include the following: Consistent Financial Performance : 7 out of 10 of the fund’s top holdings were able to consistently increase in net income and net revenue since 2012. High Growth : The average increase in net revenue and net income, excluding NCC Ltd., was 33.3% and 44.6% respectively. Low Valuation : The average P/E for the fund’s top holdings, based on the valuation of the India listings, is 25. This displays that the fund’s has upside potential based on the reconciliation of its P/E. The higher valuation of other ETFs in India further verifies this. India’s Macroeconomic Outlook: A Bullish Sentiment is Befitting Annual GDP Growth : India’s annual GDP growth recently expanded to 7% during the 2nd quarter of 2015, and is projected to increase to 7.5% by the 2nd quarter of 2016. Marketing to the Bottom of the Pyramid : During my time in India, I lived in rural areas where houses did not have running water, and only had electricity for two hours every day. Consumption is still king in India, as these same households also had internet, cell phones, and TVs. This demographic, coupled with the affluent population of India, proves that the trends of consumption are relevant to the entire population. Consumption Growth : Consumption has clearly been on the rise in India since 2012, and Trading Economics has made the following projections regarding consumption growth during the next twelve months. Consumer Spending will increase by 6.7% Disposable personal income will increase by 20.2% Inflation will remain near 3.8% (click to enlarge) Source: Trading Economics . Small-Cap Approach : This approach seems to be the most strategic means to gain exposure to India’s economic growth, as I have witnessed the strength of SMEs in India, and particularly the benefits of microfinance. The financials and valuation previously presented further display the advantage of this approach. Exports : Exports are projected to increase by 12.4% during the next twelve months. Conclusion I recommend the Market Vectors India Small-Cap Index ETF as a strategic means for investors to gain exposure to India’s economic growth. I will be focusing on the EGShares India Small-Cap ETF (NYSEARCA: SCIN ) in another article, to determine the relative effectiveness of this fund as an appropriate vehicle to gain exposure to India. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SCIF over the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Nigeria’s Diversified GDP Offsets Oil Price Risk

Summary Nigeria’s GDP is extremely diversified, offsetting the risks of the current low price of oil, which has attributed to a sharp decline in the Global X MSCI Nigeria ETF. The main strengths of the ETF include the construction and banking industries, while the consumer products industry is characterized by high valuation and low growth. The sharp drop in the fund’s price since late November has created low valuation, and consequently a buy opportunity. I remain optimistic about Nigeria’s economic future, despite the fact that oil has plunged to a 6.5 year low. Citigroup even says that there is a 90% chance that oil will drop closer to $30/barrel soon . The impact of the declining price of oil has resulted in a significant decline of the Global X MSCI Nigeria ETF’s(NYSEARCA: NGE ) stock price, and this trend is certain to continue if the price of oil declines further. As 70% Nigeria’s government revenue and 90% of its export earnings come from oil exports , its struggle in a low price oil environment is inevitable. This can be seen historically in the decline of this ETFs price since late 2014, as well as examining Nigeria’s economic development since 1999 , when oil prices began to increase to an all time high by 2008. Moreover, Boko Haram can be seen as a threat to the fund’s performance, as it has previously also been responsible for a decline in the fund’s price. NGE data by YCharts However, I still take a bullish view on Nigeria on the basis of a newly emerging diversified GDP, that is not completely dependent on oil revenue; oil exports account for only 14% of the country’s GDP. The country’s Annual GDP growth is projected to increase from its current level of 2.57 to 3.61 by the 2nd quarter of 2016. The key strength of Nigeria is its banking industry, which is the second largest, only outsized by South Africa. Recent financial performance of the holdings in this industry, as well as their extremely low valuation, further edifies the value of this fund. The growth, financial performance, and current valuation of the construction industry can also be seen as a positive driver for this fund, as Nigeria is one of two countries that is projected to have higher construction growth than China. The consumer products industry is a hot topic in Nigeria, as consumption in Nigeria has been on the rise. I am, however, concerned with the future outlook of this industry, due to its relative high valuation and slowed growth in net income. Overall, a low oil price environment has created a buy opportunity for Nigeria, and the new diversified economy is strong enough to continue thriving. However, an increase in the price of oil in the future is necessary for full reconciliation of the fund’s price. Industry Specific Performance Each industry achieved the following level of growth in net income between 2012 and 2014 ; these calculations are based on the average growth of the fund’s top 10 holdings: Consumer Products Industry: 5.3% decline Construction Industry: 65.8% growth Banking Industry: 57% growth As of June this year, the average valuation for the industry was as follows: Consumer Products Industry: P/E=50.5 Construction Industry: P/E=14.9 Banking Industry: P/E=5.8 Therefore it is easy to make the following industry generalizations: The consumer products industry can be characterized as being in a bubble, and having disappointing financial growth. Its high valuation and low growth presents a minor threat to the fund’s performance. The construction industry can be characterized as having attractive valuation and substantial growth. It can be considered one of the positive drivers of the fund. The banking industry had substantial growth and has extremely low valuation. It can be considered the core competency of the fund. If there were Nigerian banking ADRs, then I would recommend solely investing in them rather than investing in this ETF. Consumer Products Industry 2015 Outlook: High Valuation with Moderate Growth Projected 1. During the 2nd quarter of 2015 , Nigerian Breweries PLC’s net revenue grew by 13% YoY and it also had 24% growth in EPS. Consequently, the company is now more attractively valued, as its P/E is now 21.7; its P/E in June was 26.3. 2. Nestle Nigeria’s net revenue declined by 17.6% YoY in March 2015, and the company’s profit decreased by 103% during this time as well. Its current P/E is 39.7 , which is slightly higher than its P/E of 35.9 in June. 3. Guinness Nigeria PLC’s net income declined by 12.2% YoY in March of 2015. Its current P/E is 61.2 , a drastic improvement from its P/E of 89.3 during June. Overall the consumer products industry can be considered a weakness of this fund, with an average P/E of 40.9, and disappointing growth during 2015. (click to enlarge) Source: Trading Economics The appeal of the consumer products industry in Nigeria is very obvious, given the substantial increase in consumer spending since 2012. The consumer products industry does have an overall favorable outlook between now and the 2nd quarter of 2016 : Consumer confidence most recently decreased by 12.4%, but is projected to decrease by 10% YoY during the 2nd quarter of 2016. Consumer spending is projected to increase at a modest rate of 2.3% during the next twelve months. Disposable personal income is projected to increase by 9.5% Overall the consumer products industry holdings are not ideal, but do not offset the appeal of the fund as a whole. Approximately 30% of the fund’s assets invest into this industry, providing the opportunity for the fund to benefit from the relative strengths of other industries. Despite disappointing growth and high valuation of these holdings, they do have a positive outlook throughout 2016. This fact, coupled with the positive industry outlook for the next 12 months, provides a somewhat favorable future outlook for these holdings. Reuters projects that Nestle Nigeria PLC’s EPS will increase by 7.6% between December 2015 and December 2016. Reuters projects that Guinness Nigeria PLC’s EPS will increase by 13.8% between December 2015 and December 2016. Reuters projects that Nigerian Breweries PLC’s EPS will increase by 8.9% between December 2015 and December 2016. Construction Industry 2015 Outlook 1. Lafarge Africa’s net income grew by 22% YoY during the 2nd quarter of 2015, reflecting a continued growth trend, although the growth has been slowed when compared to 2014. Consequently it is more undervalued at the moment, with a P/E of 11.42 ; the company’s P/E was 13.3 in June. 2. During June 2015, Dangote Cement’s net revenue rose by 15.94% YoY, and its operating profit grew by 9.3% YoY. Its current P/E is 15.33 , slightly lower than its P/E of 16.5 in June. Overall, the holdings in the construction industry have become cheaper, and were able to achieve substantial growth during 2015. The construction industry can now be viewed even more so as a positive driver for this fund, with a consistent demonstration of high growth and low valuation. However, these companies only account for around 11% of the fund’s total assets. Banking Industry: A Gem for Value Investors 42.16% of the fund’s assets are invested into the banking industry, which is the strongest segment of this fund, due to exceptional financial performance and incredibly low valuation. It is the strength of this industry in particularly that leads me to strongly justify investment into this ETF, amidst the risks associated with low oil prices and politics. Moreover, it is a strong complement to the relatively slower growth and higher valuation of the consumer products industry. 1. Guaranty Trust Bank PLC increased its net income by 34.1% YoY during the 2nd quarter of 2015, which is a substantial improvement from the growth experienced between 2012 and 2014. This has consequently created even lower valuation, as the company currently has a P/E of 5.45 . 2. Zenith Bank PLC increased its profit after tax by 12.1%, which is significant to note as its net income fell by -0.9% between 2012 and 2014. Its valuation is also substantially more attractive, as its P/E is currently 4.13 . 3. FBN Holding PLC had a 4.9% YoY increase in its profit after tax during the 1st quarter of 2015. Its P/E has now dropped even lower to 2.25 . 4. Stanbic IBTC Holdings PLC did not fare well during 2015, with a 52% YoY decline in Profit after tax during June 2015. Its net income previously grew by 230.3% between 2012 and 2014. This company is no longer listed in the top 10 fund holdings, indicating that less than 4% of the fund’s assets invest in this company. The company’s P/E is currently 7.98. 5. Ecobank Transnational Inc.: During the 1st quarter of 2015 , the company’s profit after tax rose by 65% YoY. The company’s P/E is currently 5.12 . Four out of five of the holdings in the banking industry were able to drastically increase their bottom line, and now consequently have substantially lower valuation; the average P/E for these five holdings is 5. This industry has demonstrated consistent financial performance, and is clearly being unfairly harmed by the low oil price environment. Therefore, it can be said that the low price of oil has created a substantial buy opportunity for the banking industry in Nigeria, and consequently the Global X MSCI Nigeria ETF, which invests 42.16% of its assets in the industry. What if Oil Prices Drops Further? The fund’s price has consistently declined from its 52 week of 15.56, due to the decline of oil prices beginning in late 2014. Consequently, the fund now currently has a P/E of 8.8, a far cry from the valuation of other ETFs. It is clear to see that the financial performance of the companies that the fund invests into has been exceptional, and that Nigeria has developed a new economy that is not entirely oil dependent. While it appears that oil may drop closer to $30/barrel in the future, this should not be viewed as a long term threat. Waiting for a further drop in the fund’s price, when the price of oil declines further, would be a wise endeavor. However, the takeaway is that this fund has massive upside potential once oil prices recover, and that most of the companies have fared well amidst low oil prices. The consequent irrational drop in the fund’s price has created a valuation paradise situation, for investors willing to risk investing in Nigeria. I first published an article stating my bull thesis for Nigeria when the fund was trading at 9.73; its price is lower now, but so is its valuation. Conclusion Nigeria is an excellent long term buy at the moment, with an inevitable rebound once oil prices recover. However, the country’s GDP is now diversified, and company’s in the construction and banking industry particularly have had exceptional financial performance amidst low oil prices. A further drop in the fund’s price due to declining oil prices would create even more attractive valuation. Regardless of the timing or price of the buy, a long term approach to Nigeria would be a wise endeavor for investors. My main concern is the high valuation and low growth of the consumer products industry, but this can not be avoided since the none of the fund’s holdings are listed on US exchanges. The Global X MSCI Nigeria ETF is holistically an excellent pick for investors who are willing to hold it long term, and profit from Nigeria’s economic growth. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Market Vectors Vietnam ETF: Look Elsewhere

Summary The Market Vectors Vietnam ETF has lost 10.59% in the past year, while the VN Index has gained 5.45%. Vietnam is most successfully navigated by actively managed funds, that invest in companies that are undervalued and have high dividend yields. Foreign Ownership Limitation in Vietnam is another factor that attributes to the poor performance of the Market Vectors Vietnam ETF. Investment has been shifting towards Vietnam, due to some of the following factors that make investment in this country attractive: GDP growth of 6.12% in the second quarter of 2015. Manufacturing shift to Vietnam, due to wages in Vietnam being 46% lower than China . High youth population that is highly ambitious, making it an attractive destination for investment. Publicly listed companies that are undervalued and pay higher dividends relative to other countries in Asia. Vietnam can be characterized as a country with acceptable risks and high returns. However, there is a large discrepancy between the performance of investment funds in Vietnam. Choosing to invest in the wrong investment fund can be the difference between high returns and negligent returns or losses. The Market Vectors Vietnam ETF (NYSEARCA: VNM ) has lost 10.59% in the past year, which is very strange considering that the VN Index has gained 5.45% in the past year. While exchange traded funds provide low management fees and convenient access to global equity, a fund that loses substantially in a market like Vietnam should be a red flag for investors. Those wishing to gain exposure to Vietnam should give serious consideration as to whether this fund is a true reflection of the opportunities in Vietnam. While I am personally bullish on Vietnam and invest directly in listed equity in Vietnam, I question the value of this fund. Top Holdings of Listed Equity in Vietnam Taking a closer look at the top holdings of the fund’s listed equity, we can see that the top holdings are not a true reflection of the growth potential of Vietnam. The average P/E ratio for these companies is 17.8, the average 2014 ROE was 12%, and the average 2014 ROA was 5.1%. Strategic Navigation The average valuation is not at all attractive, as the average P/E ratio in Vietnam is 12.5. Actively managed investment funds that invest in a diversified portfolio of securities, with a lower P/E ratio than average, have been extremely successful. Moreover, targeting the SME sector is another effective strategy, which has allowed some funds to have dividend yields of 10%/year . It is clear to see that Vietnam is most successfully navigated by actively managed funds, that invest with the criteria of low valuation and high dividend yields. Compared to the VN Index, and especially actively managed funds, the performance of the Market Vectors Vietnam ETF is inferior. These investment funds, which are not listed on US Exchanges, provide verification that there is extreme opportunity for profit in this region, which is not reflected in the performance of the Market Vectors Vietnam ETF. Foreign Ownership Limitation The foreign ownership limitation is another factor in Vietnam that impacts the performance of foreign investment funds. The foreign ownership limitation in Vietnam generally restricts foreign ownership of listed equity to 49%, although it is limited to 10% or 30% in other cases. The Market Vectors Vietnam ETF does not currently invest in shares of companies that are fully held by foreign investors. This restricts the fund from investing in highly valuable companies that foreign investors are actively seeking, even to the point of being willing to pay a premium of up to 20% . PXP Vietnam Asset Management is another extremely successful company in Vietnam, whose success is partially attributed to the fact that 52.5% of its portfolio NAV is comprised of companies that are fully held by foreign investors. ETF Skepticism Exchange Traded Funds can sometimes be desirable, as they are characterized by low management fees and can sometimes produce desirable returns for investors. However, the case with Vietnam seems to be very clear; the most profitable venture for investors is to invest in actively managed funds or invest directly on the stock exchange in Vietnam. The inability of this fund to invest in companies that are fully held by foreign investors and its failure to invest in companies with low valuation are both factors that attribute to the fund’s poor performance. Sure the ETF is near its 52-week low and maybe there is some chance of profit, but it is clearly not the best form of investment in Vietnam for those seeking to leverage off of the long-term opportunities that Vietnam presents. I personally trade directly on the stock exchange in Vietnam, would never invest in this ETF, and believe that Vietnam is best navigated by the previous investment funds that I mentioned in this article. Alternatives Listed on US Exchanges Finding worthwhile investments in Vietnam that are listed on US Exchanges is very challenging, since there are not any ADRs specifically for Vietnam. However, investors can consider the following as alternatives for the Market Vectors Vietnam ETF: Vietnam Holdings Ltd . ( OTC:VNMHF ): Vietnam Holdings Ltd. is a close ended investment company that invests in listed equity in Vietnam. The company currently has a P/E of 5.33 and is investing in two companies, which are fully held by foreign investors, including DHG Pharmaceutical JSC and Vietnam Dairy Products JSC. These two factors may make it a worthwhile pursuit for investors. Samsung Electronics Co. Ltd. ( OTC:SSNLF ): Investors can also gain exposure to Vietnam indirectly by investing in Samsung, which shifted its manufacturing from China to Vietnam because of lower wages. Some of the holdings of the Market Vectors Vietnam ETF are listed on US Exchanges. These include Emerson Radio Corporation (NYSEMKT: MSN ), Student Transportation Inc. (NASDAQ: STB ), and DCP Midstream Partners LP (NYSE: DPM ). Conclusion Investors wishing to gain exposure to Vietnam should avoid the Market Vectors Vietnam ETF. The most attractive investments include investment funds not listed on US Exchanges, and directly investing in listed equity in Vietnam. However, the above alternatives that are listed on US Exchanges can be examined as potential alternatives. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.