China (FXI) Alternative That Could Pay Off Big? CIVETS?

By: ispeculatornew
Date posted: 11.03.2011 (5:00 am) | Write a Comment  (0 Comments)

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Last week, I discussed why I personally think that China is deemed to be a formidable long term play and why most of us with a 20, 30 or longer time horizon should seriously consider putting a significant portion of their holdings into large caps in China, ideally through an ETF such as FXI. We did expect to get a lot of comments and that did happen, mostly through emails. However, I was happily surprised to see that most of you did agree to some extent with the idea.

One of the interesting emails that I got was to suggest an alternative. I expected to get asked about investing in the entire BRIC (Brazil, Russia, India & China) but instead, I was asked about investing into CIVETS.

What does CIVETS stand for?

Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa

Why these countries? They are seen as emerging economies that have a very strong potential mostly because of their young and increasingly educated populations.

To my surprise, there are currently no ETF’s that track this index from what I could see. It’s a surprise because with 2000 ETF’s or so, it seems like at least one tracks almost every index out there. I’m only slightly exagerating. In any case, there seem to be 2 main indexes that track CIVETA, one built by HSBC and one by S&P. So I would certainly expect an ETF to start tracking this in the near future although the fees involved might be higher than the typical ETF because these markets are not the most liquid and easy to trade on.

Alternatives To Trading 1 CIVETS ETF

While it’s far from convenient, you could always use the single country ETF’s that track each of these individual countries:

Columbia Growth Equity Strategy Fund (RPX)
Market Vectors Indonesia Index ETF (IDX)
Market Vectors Vietnam ETF (VNM)
Market Vectors Egypt Index ETF (EGPT)
iShares MSCI Turkey Index Fund (TUR)
iShares MSCI South Africa Index Fund (EZA)

This would give you an exposure to many of the most promising emerging economies.

A Big If

Personally, I am still very hesitant to go this route however. Why? Many of these countries have serious challenges in front of them. For some the challenges are political (South Africa, Egypt) while others face issues with crime, a changing economy or even inflation. All of these make the entire group very unpredictable. Vietnam for example has incredible potential but it also has a number of challenges and faces competition from China and abroad. I would certainly think that a few of these will greatly overperform China over the long term but I’m not convinced that the group will be able to pull off the same thing.

A Good Investment?

I would certainly consider investing in CIVETS, especially when an ETF that tracks the group will finally arrive on the market. That being said, I do not feel nearly as confident and would certainly not have 30-40% of my holdings invested in this group as I would with China. How about you? What are your thoughts on CIVETS as an investment, and when compared to an investment in China throguh an ETF like FXI?

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