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Jacob Wolinsky
Jacob Wolinsky
Articles  | Author's Website |

Five Worst Performing Country ETFs: A Golden Investment Opportunity?

November 29, 2009 | About:

Sometimes the best places to invest are in the scariest assets that have experienced the largest declines. Historically bear market declines are followed by bull markets. The greater the market crash, the greater the market recovery that follows it usually is. This is what David Dreman called investor overaction, when the economy is growing investors bid up equity prices too high, and when the economy is sour and the future is uncertain the market overreacts on the down side. This phenomena occurs in all asset classes, however stocks are the most affected since they are more volatile than must other assets classes. This phenomena is not unique to the United States, numerous studies have confirmed that foreign Investors overreact as much as American investors. For example the Russian stock maket declined about 83% from its peak in May 2008 until February 2009. This made Russia one of the worst performing equity markets during that time period. However since February the Russian Stock market has gone up 173% making it one of the best performing equity markets.

Globally, nearly every stock market has experienced massive declines due to the global financial crisis. Most stock markets reached a Peak during October 2007 and continued to decline from a time period ranging from November 2008 until March 2009. Since that time period markets worldwide have went on to provide massive returns to investors. I decided to compile a chart detailing countries that have experienced massive stock market declines. These countries have went on to be some of the best performers subsequently. In the last column on my chart, I provided the percentage that the market is off its peak. This last column shows that while an investor may have missed the rally there still may be more room for returns. For example Russia is still off 50% from its peak reached in May 2008. However it is important to remember that if the market goes up 50% it will still not reach its peak, it has to increase by 100% to reach its previous peak. This furthers my cases that many of these markets still have ample room to move.

I only included countries that had an ETF that I could obtain sufficient information about. Iceland to my knowledge would make the list since it had a huge stock market decline and has probably been the country most affected by the global financial crisis. Iceland had a massive one day drop of 76% in October 2008 alone!, however there is no Iceland ETF and I therefore did not include Iceland in my table below. Ireland has an ETF symbol IQE, however I could not locate sufficient data on the ETF and therefore had to omit it from the chart below. Therefore I only included the countries that had ETFs I could obtain information on. I did not include any regional ETFs (ie Latin America) I focused exclusively on country ETFs.


Peak To Trough %

% Increase From

% Off From


It should be noted that four out of the five countries listed are BRIC countries (Brazil, Russia, India, China). It is ironic that these countries which are touted as high growth countries and as very attractive investments were the most dumped during the global sell-off. As a value investor I see this as a classic case of everyone trying to get in on the latest craze. However, once these speculators lose a significant chunk of their investment they sell to protect against further loses. However, since the sell-off many investors have come back to their senses and are getting exposure to these countries again. Many investors are now poring into these markets because they are becoming "hot" again.

However despite the large run up there there may still be more upside for these ETFs which are still selling at a large percentage below their peak. This is not a buy recommendation, every investor must analyze these etfs and see if they are right for their portfolio. In addition many of these countries are still experiencing economic difficulties. Russia has a declining population and an economy entirely dependent on natural recourses. China is dependent on exports which many countries are no longer purchasing. However every investor should look for possible opportunities in these ETFs since they might still be considered a good contrarian/ value buy.

Disclosure: I do not own any of the ETFs mentioned above, however I have large exposure to Russia through my holding of ETF GUR Emerging Europe ETF

About the author:

Jacob Wolinsky
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

Visit Jacob Wolinsky's Website

Rating: 3.2/5 (16 votes)


Gajrajs - 10 years ago    Report SPAM


It will be more insightful for readers if you could include a valuation analysis. In absence of any understanding of what's 'fair value' of these stock markets it's more of an instinct and hope than an investment strategy.

With reduced earnings last year ( 2008 ) the S&P500 was overvalued at 1000+ although that was way lower than it's peak. And, we all know what happened in the next 6 months. Now, we are reaching the same levels again, and the market has lost it's speed since August 09 with only about 5% move since then.

Hope this makes sense...

Batbeer2 premium member - 10 years ago
In absence of any understanding of what's 'fair value' of these stock markets it's more of an instinct and hope than an investment strategy.

Good point. Does anyone know of a rational framework to determine if an index is cheap ?

AFAIK neither Graham or Fisher had anything of substance to offer on the matter.

Yswolinsky - 10 years ago    Report SPAM
It will be more insightful for readers if you could include a valuation analysis. In absence of any understanding of what's 'fair value' of these stock markets it's more of an instinct and hope than an investment strategy.

Thank you for your comments. I did not look at valuation however right now values are probally depressed due to decline in earnings. I normally use 3-5 average P/E ratios which is hard to do here since most of these etfs are new. However I still think that large declines regardless of current P/E ratios can make a stock/etf a good value pick. I am not saying I recommend buyinh these etfs however, sometimes a large decline in a stock/asset warrants further investigation. This is due to investor over reaction. In fact this is one of the five methods that Tweedy Browne uses for evaluating stocks. Stocks that experience large declines (even if earnings also decline and P/E ratios therefore become elevated) usually will revert to previous prices this is known as reversion to the mean. This has been well documented by both David Dreman and Tweedy Browne LLC. If you want more data on this topic look at What Has Worked In Investing which is a magnificent pamphlet produced by Tweedy Browne.In fact many of the top value investors recommend that the first place to look for stocks is a list of stocks at their 52 week lows.

Sivaram - 10 years ago    Report SPAM
Gajrajs: "It will be more insightful for readers if you could include a valuation analysis. In absence of any understanding of what's 'fair value' of these stock markets it's more of an instinct and hope than an investment strategy."

I think analyzing foreign countries, especially emerging markets, will always be more of an "instinct", "speculation" and "feeling" than any concrete analysis. A lot of people don't share my view and treat all countries as similar and they have made a lot of money in the last 5 years; but I would argue that they are playing with fire and have simply been lucky so far.

The reason I say analysis is based on a "feeling" or "instinct" is because the vast majority of the valuation of many countries, especially outside Europe and North America, comes from non-quantifiable factors like property rights, politics, taxes, and so on. Certain countries will trade at really low valuations (such as Brazil in the early 2000's; Russia now; Japan at various points in the last decade) but it's never obvious if the market is properly discounting them or not. Conversely, we have some countries trading at seemingly lofty valuations (China now; India now; etc) but are they actually more expensive or not?

If a country provides very weak property rights--such as Russia or China--how big of a discount do they deserve? That is something that can be debated endlessly.

Having said all that, John Templeton, Jim Rogers, and others, have successfully navigated foreign markets so it can be done. But I believe the investment rests more on "feeling" than any analysis. You also need to get the timing right with these macro-type bets (Jim Rogers was bullish on China from the early 90's yet most would have lost a lot of money until 2003 or thereabouts--depending on what you were investing in.)
Gajrajs - 10 years ago    Report SPAM
All good points. However, I believe since ETFs have underlying equity holdings it's possible to see the underlying PE, for example. INP is an ETN but you could look at EPI which has similar performance.

Quick check on yahoo showed following PEs:

RSX: 39.16

EPI: 15

GXC: 15

EWI: 13.47

EWZ: 16.34

Compare this to PE for SPY of about 16 right now. Not sure if RSX is correctly calculated. As counter check it should not be difficult to see the PE prevailing in these stock markets in general. If the yahoo figures are approximately accurate we are about fair value right now in most markets. I sense we may be in for a bit of a pause and potential pullback, which will be more volatile in these emerging markets. So, I'd say be patient market will come to you. At the same time, to invest now and expect return back to 2007/2008 highs may not be prudent.

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