Major Country ETFs

Country funds provide investors with a simple and effective tool to capture the headline rate of economic growth in certain countries and regions. As certain regions such as Portugal, Ireland, Greece and Spain (the PIGS) ran into trouble with national debts, investors have been able to switch to regions without these problems, OR to capitalise on oversold conditions that created buying opportunities in country funds that fell too far during the crisis.

Countries or regions which are oversold or too expensive can be identified by various measures including the ALTAR score ( see more at www.etfresearchcenter.com ). This score is clearly not the only factor to guide investors, however it has been proven a good starting point for investors seeking value.

The domicile of many companies in an index is less important these days than it once was because many of the multinational companies in a country fund derive much of their sales from outside the country. So a more important factor affecting future sales and earnings may be the currency and for investors the current valuation of the market.

More relevant in determing investment merit than the question " What are the economic conditions in country X ? " are the profitability of the companies comprising the index and the current valuation of those present and future earnings.

Key variables including forecast earnings, the relationship between book value of assets and the market price of a share, the return on equity and the cost of investing in an ETF need to be examined.

This week we have looked at the price to book value multiple for major country ETFs and conclude that low Price to Book multiples like Japan do not necessarily indicate a bargain . China on the other hand still looks quite dear however the Emerging Markets led by Brazil (the price to book value of the Brazilian market is roughly half of Australia's and its companies are more profitable) appear to offer real value. Brazil may be accessed by IBK locally but it includes China which we think is expensive. Europe looks like reasonable value on our numbers which are a good starting point for further examination.

The following is the list of country funds listed on the ASX 

John Kimber
612 9956 5165
0412 444724

John Kimber is a representative of Ord Minnett Ltd, AFS licence 237121.  This article contains general financial advice only and does not consider your personal circumstances; you should determine its suitability to you.  Before acquiring a financial product you should consider the relevant product disclosure statement.  Past performance is not a reliable indicator of future performance.