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Oil Price Impact On Single Country ETFs

Single country ETFs demonstrate widely varying dependence on oil price. Canadian, Columbian, Norwegian and Russian ETFs are the most correlated to USO. Chinese and Indian ETFs are among the least correlated. In a recent article about primary beneficiaries of a potential oil price rebound, Zacks Funds identified Russia, Malaysia and UAE with their respective ETFs as the ones that could make a turnaround if the oil price makes a sustained move higher. This prompted me to look at a wider universe of single country ETFs and investigate their performance dependency on oil price. For this exercise I compiled a list of 45 US listed single country ETFs. All of the funds are market cap weighted and I did my best to pick the ETFs with the highest assets under management (AUM) for each country. I then obtained correlation estimates with the United States Oil Fund ETF (NYSEARCA: USO ) using a free online tool InvestSpy. Below is a full results table, calculated utilizing 1 year of historical data: There are a few observations to be made from the correlation coefficients above: It turns out that the most correlated ETFs with the recent oil price movement were the iShares MSCI Canada ETF (NYSEARCA: EWC ), the Global X MSCI Colombia ETF (NYSEARCA: GXG ), the Global X MSCI Norway ETF (NYSEARCA: NORW ) and the Market Vectors Russia ETF (NYSEARCA: RSX ). Each of these four ETFs had a correlation coefficient above 0.50 with USO, which is a relatively high number in the cross-asset class dimension. This probably does not come as a big surprise given that all four economies are significant oil exporters as can be seen from the interactive map provided by The Economist. So in a search for country ETFs that could benefit from rising oil price, these would be the first options I would consider. Some of the countries that one would expect to find at the top of the list are not there. One part of the explanation is that there are a lot of major oil countries without an ETF targeting local stocks. This includes Saudi Arabia, Iran, Iraq, Venezuela and a number of African countries. However, some other key oil exporters like UAE, Qatar and Nigeria make appearance outside the top 10. I believe a big reason for this is the iShares MSCI UAE Capped ETF (NASDAQ: UAE ), the iShares MSCI Qatar Capped ETF (NASDAQ: QAT ) and the Global X Nigeria Index ETF (NYSEARCA: NGE ) were launched only 1-2 years ago and have seen only a limited interest from investors thus far. None of them has more than $50 million in AUM and liquidity is subpar, therefore prices can be stale, consequently pushing down the correlation with other securities. This is something investors should take into account before making an investment decision. Finally, I thought it would be interesting to take a closer look at the countries at the bottom of the list, i.e. the ones least correlated with oil price. It was somewhat unexpected to see China and India at the very bottom of the list. But both countries are net importers of oil, generally benefiting from lower oil prices, which pushes correlation coefficients for the iShares China Large-Cap ETF (NYSEARCA: FXI ) and the iShares MSCI India ETF (BATS: INDA ) against USO lower. For investors with a stronger view on oil outlook, this can be a differentiating factor when comparing developing countries as potential investments. If you have more observations from the correlations table in this article, feel free to share them in the comments to facilitate further discussion. 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. Share this article with a colleague

Ding Dong: Currency Devaluation Plagues Vietnam ETF

2015 marks the fourth year in the past six that the Southeast Asian nation has intentionally weakened the dong. VNM, the lone ETF dedicated to Vietnamese stocks, is down 5.4 percent in the past week, 11.5 percent over the past month. Although VNM is not large in terms of number of holdings (it holds just 30 stocks), the ETF is levered to the Vietnamese export story. By Todd Shriber, ETF Professor China is not the only Asian country that has recently devalued its currency nor are China exchange traded funds the only ones tracking countries in the region that have been slammed by the extreme currency interventions. Vietnam, previously a prolific devaluer of its currency, the dong, is back at it again. In fact, 2015 marks the fourth year in the past six that the Southeast Asian nation has intentionally weakened the dong and was the case following prior instances of dong devaluation , the Market Vectors Vietnam ETF (NYSEARCA: VNM ) is feeling the pain. Ding Dong VNM, the lone ETF dedicated to Vietnamese stocks, is down 5.4 percent in the past week, 11.5 percent over the past month and if the support area the ETF is currently flirting with, a return to the 2013 lows is likely. Not surprisingly, VNM’s lowest levels of 2013 were seen less than 90 days after, a dong devaluation. This time around, market observers see the dong devaluation as a response to China’s similar move. The theory makes sense as a Vietnam is also an export-driven economy and central banks in such economies, particularly in Asia, will take drastic moves to defend their countries’ exporters. “The State Bank of Vietnam (SBV) devalued the dong (VND) by 1 percent against the dollar on Wednesday-its third adjustment so far this year-and simultaneously widened the trading band to 3 percent from 2 percent previously, the second increase in six days,” according to CNBC . Although VNM is not large in terms of number of holdings (it holds just 30 stocks), the ETF is levered to the Vietnamese export story because it allocates over a quarter of its weight to consumer sectors and 44.1 percent to financial services firms, the companies that are lending to other parts of the Vietnamese economy. “Having debuted in August of 2009, the fund recently celebrated its five year anniversary trading live, and as one may expect the underlying index being based on the domestic equity market of Vietnam is not incredibly deep to the limitations of the country still being on the fringe of Frontier/Emerging markets territory,” said Street One Financial Vice President Paul Weisbruch in a recent note. Intended or not, Weisbruch’s comments about Vietnam’s market status are well-timed if not prescient because the country has not been shy about its desire to earn a coveted promotion from frontier to emerging markets status from index provider MSCI. The problems with that promotion are threefold for Vietnam. First, Vietnam is not even on the list of countries MSCI is considering for such an upgrade. Second, it can takes to earn the promotion after being added to the list. Just look at Qatar and United Arab Emirates. Third, Vietnam’s heavy-handed approach to managing its currency is probably not something index providers look favorably upon. Vietnam is currently the ninth-largest country weight in the iShares MSCI Frontier 100 ETF (NYSEARCA: FM ) at a weight of almost 3.5 percent. Home to heavy weights to two OPEC members, Kuwait and Nigeria, and several other major oil producers, FM is off almost 10 percent this year. That is to say further weakness from Vietnamese equities will not be welcomed by this ETF, either. VNM had a P/E ratio of just over 15 at the end of July , which is a slight discount to FM and a noticeable premium to the MSCI Emerging Markets Index. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. 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. I have no business relationship with any company whose stock is mentioned in this article.