International and emerging markets offerings are the coolest kids at the ETF party right now, favored in a big way over traditional long U.S. equity ETFs. International ETFs saw $5 billion in new inflows in November.

Vanguard Emerging Markets ETF (VWO) led all ETFs with $1.3 billion in new investments. Investors seem to prize Latin America and Pacific Rim ETFs.

There are plenty of other opportunities in the emerging markets ETF universe. In fact, investors can use dozens of country-specific ETFs to gain exposure to compelling emerging markets that don’t always grab headlines. One of those is iShares MSCI Turkey Investable Market Index (TUR). The investment thesis surrounding Turkey is worth considering. Given Turkey’s geographic proximity to both Europe and Asia, opportunities for trade are bountiful.

JPMorgan recently upgraded Turkish equities to “overweight” from “neutral,” saying that Turkey’s exporters will benefit from an economic recovery in Europe and the Middle East. Ratings agency Fitch followed that with an upgrade of its own, raising Turkey’s credit rating to just two notches below investment grade. They cite Turkey’s resilience to the global economic slowdown and the country’s access to credit markets.

These could be positive catalysts for TUR going forward. The ETF is volatile and made a big down move from a closing high of $55.37 in October to $44.60 in late November. December has been better; investors bid the ETF back above its 50-day moving average to a close of $50.93 today. If TUR can hold support at $50, it could continue to make its way higher. Even with the volatility, TUR is up nearly 90% year-to-date.

Investors should note the sector allocations within TUR. Nearly 52% of holdings are in the financial services sector. Industrial materials and telecom combine for another 26%. Even so, some analysts expect the ISE National 100 Index to test its record high of 58,864 in the next six to nine months. From there, the index could move as high as 63,000, which would be a boon for TUR.

It appears the table is set for TUR to join the ranks of more popular emerging markets ETFs. The outlook for Turkish equities may prove too alluring to ignore. TUR could deliver some tidy returns in 2010.

Bulgaria’s banks are being cautious in their response to government calls to increase the flow of loans, wary of potential problems that could arise in the new year, while awaiting more positive signs from the economy before turning on the lending taps again.

As part of its efforts to get the economy, and more particularly liquidity, moving again, the Bulgarian National Bank (BNB) cut its basic interest rate for the fifth month in a row on December 1, reducing its key lending rate to 0.55%, down 0.06 percentage points compared to November. At the beginning of the year, the bank’s basic rate was 5.17%, with the latest cut taking the BNB’s rates to their lowest level since free market banking was introduced in the wake of the fall of communism in 1991.

Both the government and the central bank have been pushing commercial lenders to come to the party, citing the BNB’s cuts to its rates and the relatively solid position of most private banks.

According to BNB governor Ivan Iskrov, the country’s banking system retained high capital adequacy levels and was stable. This stability helped them post combined profits of more than $465m for the first nine months of the year, Iskrov said in early November.

Bulgaria’s banks have worked to boost capital adequacy levels, offering higher interest rates to depositors to attract more funds and shore up their own position, paying out as much as 10% on deposit accounts.

In mid November, the finance minister, Simeon Djankov, called on the country’s banks to reduce their interest rates by 3% or more on deposit accounts to give spending and investing greater appeal, while also saying the banks should step up loan activity.

While keen to see an increase in lending, Violina Marinova, the chairperson of the Association of Banks in Bulgaria (ABB) and the chief executive director of DSK Bank, recently said that a reduction of interest rates is not just reliant on the banks themselves and their good will but on the wider economic climate.

Once the economy began to pick up and run smoothly, companies will increase production and hire more staff, Marinova said in an interview with local press in mid-November. This in turn would result in the need for more finance for their activities and would spark competition among banks, thus pushing down interest rates, she said.

The economic spring may not bloom any time soon though, with the government predicting that the economy will contract further in 2010. Addressing the parliament in mid-November during the debate over next year’s budget, Prime Minister Boyko Borisov said the economy would fall back by 2% in 2010, before returning to positive growth in 2011.

One of the requirements for a turnaround was a stable banking system, which the prime minister said would help “create the most adequate conditions for economic recovery”.

While many banks have built up their capital levels, there are still causes for caution. One of these is the rising number of non-performing loans (NPLs) on banks’ books, with the BNB predicting that bad loans will hit 16.5% of the total by the end of 2009.

Though other studies do not put the ratio of non-performing loans as highly as the BNB report, suggesting that the figure will be around 10% next year, even this level is a concern. On November 27, credit ratings agency Moody’s issued a review of four Bulgarian banks, First Investment Bank AD, DSK Bank, Raiffeisenbank (Bulgaria) EAD and MKB Unionbank AD. All four were given a negative outlook, while the agency also downgraded FIB’s financial strength rating and its long-term local and foreign currency deposit ratings and DSK Bank’s local currency deposit ratings.

Moody’s said the ratings action reflected the vulnerability of the bank’s earnings and capital position to increased credit losses arising from the deepening recession in Bulgaria. In particular, the agency cited higher corporate defaults as a matter of concern.

“The corporate sector’s financial performance in the country has weakened significantly, mostly due to lower demand for Bulgaria’s exports from its main export partners and from the declining foreign direct investment,” the agency said in a statement.

It also warned that, although the banking sector remained profitable, was strongly capitalised and had good liquidity levels, the recession was resulting in increased credit losses in the system, with the rates of NPLs more than doubling since the end of 2008.

According to Elena Panayiotou, lead analyst at Moody’s for the Bulgarian banking sector, the latest assessment reflected the potential for weakened activity in the coming year as much as the present situation.

“Given that asset quality metrics lag behind macroeconomic indicators by several months, it is crucial that the banks’ current ratings incorporate Moody’s expectations of their future losses,” Panayiotou said.

In some ways, there appears to be something of a standoff between the government and the banks, with the former needing the lenders to free up liquidity to help kick start the economy, while the banks are waiting for the economy to gain momentum before increasing loan activity.

With Borisov’s government limited in the steps it can take to prime the economic pump, given the fixed exchange-rate regime and focus on fiscal policy, despite plans to issue $920m worth of euro-denominated bonds next year, it may be up to Bulgaria’s banks to blink first.

New York-based Van Eck launched on Wednesday the Market Vectors Poland ETF (PLND), a fund that will track the 26-company Market Vectors Poland Index.

PLND will trade on the NYSE Arca Exchange and charge an expense ratio of 76 basis points. Unlike most single-country international ETFs, which tend to be dominated by holdings in multi-national mega-cap companies, PLND offers exposure to companies of all sizes: according to its fact sheet, 41% of the underlying index is composed of companies with a market capitalization greater than $5 billion, with almost 50% in mid-caps.
Investing In Poland

Poland is the world’s 18th largest economy by 2008 GDP, making it surprising that there hasn’t been a pure play ETF prior to PLND. The void is even more confusing considering that #43 (Chile – ECH), #44 (Vietnam – VNM), and #50 (Israel – EIS) on the list are the subjects of country-specific ETFs. Last month, we included a Poland ETF among our list of Ten ETFs That Don’t Exist, But Should, citing the European country as a “shining example of a country that successfully transitioned from a centrally-planned economy to a capitalist market-based economy, thanks in large part to aggressive policies implemented since the fall of communism.”

While Poland’s economy certainly faces some hurdles. Its adoption of the euro has been shelved due to a failure to meet entry requirements set forth by the EU, and a once ambitious government has seen several initiatives sputter. Poland’s public debt could breach the threshold set by Polish law by exceeding 55% of GDP next year. Prime Minister Donald Tusk is now focusing on more manageable domestic agenda items, such as improving transportation infrastructure, increasing internet access, and gearing up for the 2012 European soccer championship.

Despite these obstacles, there are some reasons to be bullish on Poland. “Poland is the largest and fastest growing economy in Central and Eastern Europe,” said Jan van Eck, principal of Van Eck Global. “Poland’s economy has recently surpassed Belgium and Sweden and is one of the only economies in the CCE region to show positive growth this year.”

Poland’s local economy accounts for approximately 70% of GDP, allowing the country to come through the recent recession unscathed, at least relative to more export-dependent countries. Poland also has one of the lowest corporate tax rates in Europe and and a young, educated workforce, making the country an ideal location for multi-national firms looking to expand their reach into Europe.
Country-Specific ETFs

Van Eck has become the leading issuer of country-specific emerging market ETFs, as PLND joins several other Van Eck ETFs targeting emerging and frontier economies. The Russia ETF (RSX), Africa ETF (AFK), Indonesia (IDX), and Vietnam (VNM) have all seen some success, accumulating more than $1.5 billion in AUM in aggregate. While all of these countries are included in more broad-based emerging markets ETFs, their allocations in these funds are generally limited.

For more on the Poland ETF and the economy of Poland, see Van Eck’s The Investment Case For Poland (pdf).

Van Eck, a leading company for providing ETF investors with access to new investment categories, has done it again.

Today’s launch of Market Vectors Poland ETF (PLND) is the first pure-play single-country ETF focusing on Poland for US investors. PLND trades on the NYSE and expenses are capped at 0.76%

I asked Tomasz Janeczko, a business owner and global investor located in Poland, for his views of this new offering. He replied:

“The new Market Vectors ETF is very interesting and welcome development. Until now, investors preferring index-based trading approach to Poland could only trade futures based on popular Warsaw Stock Exchange indices like WIG20, but it was rather difficult for foreigners.

“PLND makes it a lot easier to get exposure to the economy of the 9th largest country in Europe. The Warsaw Stock Exchange in its current form started its operation in 1991 and currently has 377 companies listed. I am looking forward to see how this ETF will work in practice considering sometimes limited liquidity of certain stocks traded on WSE. I guess the fund will need to use futures traded on WSE that have better liquidity to address such shortcomings and to deliver the expected 95% correlation between fund’s performance and the index.

“Some may consider it a drawback that PLND tracks the proprietary Market Vectors Poland Index rather than the most popular (and known) Warsaw Stock Exchange WIG20 index, even though both indices have very similar constituents.

“Regarding risks, everything spelled out in the prospectus is certainly true, but I would not worry too much about the statement regarding local securities laws and shareholder rights because Poland is a part of European Union and E.U. law has precedence over national law now. This provides a rather strong guarantee that there will not be any ‘unpredictable’ changes in laws, at least not ones that E.U. does not accept.”

As of November 24, 2009 the fund held 25 stocks, with the largest being Pko Bank Polski Sa 9.3%, Bank Pekao Sa 9.07%, KGHM Polska Miedz SA 8.2%, Telekomunikacja Polska Sa 6.2%, and Polski Koncern Naftowy Orlen 5.8%.

The sector breakdown is Financials 40.2%, Energy 13.6%, Industrials 11.0%, Consumer Staples 8.6%, Materials 7.8%, Telecommunications 6.8%, Consumer Discretionary 6.7%, Technology 4.1%, and Health Care 1.2%.

Having gone through a period of consolidation and foreign investment, with many of the industry’s leading firms taking on overseas partners.

And having apparently ridden out the worst of the global financial crisis, Turkey’s insurance sector appears to be again gaining momentum.

There are some 60 companies in Turkey that offer insurance, reinsurance or private pension plan services, with most of the firms affiliated with local or foreign banks and the majority now having at least some overseas-ownership component.

Shares in traded companies in Turkey’s insurance sector have ridden the wave of the global recession over the past year. The industry index on the Istanbul Stock Exchange (ISE) peaked at around 38,000 points in late April 2008 before tumbling to 16,845 by the end of October. The year 2009, meanwhile, has been one of recovery.

As of late August, the index was trading in the vicinity of 34,000 points, having broken through the 30,000 point barrier at the end of the previous month.

While the resurgence of insurance stocks followed the general trend of the ISE, the steady climb over the past three quarters is also a reflection of the industry’s improving performance and future potential.

This potential is also borne out by the relatively low levels of insurance in Turkey, which ranks 68th globally in terms of insurance penetration yet is the 17th largest economy in the world.

Figures released by the Union of Insurance and Reinsurance Companies of Turkey (TSRSB) in early April showed that the country’s insurers were providing coverage to 13.65m individuals or businesses as of the end of 2008, nearly 20% more than at the close of 2007. Much of this increase came from business, with many employers providing staff with health and life policies.

This coverage rate still leaves considerable room for expansion, though more work by insurers will be required to attract new clients, with many in Turkey yet to grasp the opportunities on offer from the industry.

While there has been growth in the numbers of those insured, this has not been fully reflected in premium levels. According to the domestic industry publication Sigortaci, the total premium production in the Turkish insurance market increased by 0.34% in the first quarter of 2009, reaching a total of $2.1bn. However, taking into account annualised inflation of just under 8%, the overall market saw a contraction.

The picture varied across different segments though, with premium production for life insurance, which represents around 15% of the total market, strengthening by 12% to $340m, while accident insurance premiums saw a 9% drop. There were also falls in premium levels of coverage for the maritime, automotive and, particularly, the agriculture sector, which recorded a decline of more than 30% compared to the figures for the first quarter of 2008.

These results are very much a reflection of the fallout of the economic crisis, which has seen Turkey’s shipping industry hard hit, with many vessels laid up due to a lack of charters; automotive sales plunge; and agriculture prices drop, though it should be noted that the first quarter is also a fallow period for Turkish farmers, coming as it does in the dead of winter when activity and employment levels are at their lowest.

One segment that is recording high levels of growth is private individual pension plans. As of the end of March, the total of funds under management (FUM) by the 12 companies offering such services was $4.5bn, with 1.78m Turks paying into private pension schemes. Just two weeks later, on April 10, the FUM figure broke through the $4.6bn mark, with analysts expecting this trend to continue as the economy begins to pick up in the latter part of the year.

That pick up may have already started, at least for some companies in the sector. At the end of August, the initial first-half results started to come out from Turkish insurers, with Aksigorta – a member company of the giant Sabanci Holdings group – announcing a 251% increase in net profits from its insurance operations for the six months ending June 30 compared to the same period in 2008. The company reported a $24.7m first-half profit from its direct insurance activities, and a further $4m of black ink from other sources.

Given that Aksigorta posted a total $28m net profit for the first six months of 2009, it appears as if core activities, rather than subsidiary ones, have made a strong comeback.

With a growing awareness of the benefits to be had from holding insurance, money looks set to flow into the industry, and there could be further foreign interest in the sector as it moves towards meeting its potential

Swedbank

Swedbank was the first in a series of Swedish and other Nordic banks scheduled to announce results in coming days as the region’s lenders count the cost of aggressive expansion in Latvia, Lithuania and Estonia. Nordic banks piled into the former Soviet states after their entry into the European Union in 2004 and initially prospered from rapid growth in the region.

The bank revealed a surge in bad loans from the Baltic States and Ukraine. Investors were reassured by the bank’s insistence that it could weather the storm without raising fresh capital, pushing the stock up more than 11 % after a day of volatile trading. At the same time, it announced that it would slash 16% of its workforce. However, it closed on Friday up 21.5% as investors were reassured that it would not raise extra capital.

The worse-than-expected second-quarter losses show that Sweden’s banking sector is still facing a barrage of bad loans from the Baltic States, even as the country is hailed as a financial role model after its recovery from a banking crisis in the 1990s. Bank’s aggressive lending has backfired in recent months as the Baltic economies have plunged deeper into recession than anywhere else in the EU.

Swedbank, the largest lender in the Baltics, posted net losses of SKr 2, 01bn ($257m), compared with net profits of SKr 3,6 bn a year earlier. It was the bank’s second consecutive quarterly loss and much worse than the SKr 1,27 bn deficit forecast by analysts. Loan losses soared from SKr 423 mln a year ago to SKr 6,67 bn, with about two-thirds of the amount in the Baltic States and a third in Ukraine. In response, the bank said it planned to reduce staff by 3,600, about 16 % of its workforce, by this time next year, with most of the cutbacks in the Baltic States.

“The most recent quarter has been marred by continued uncertainty about the future of the economy,” the bank’s Chief Executive, Michael Wolf, said in a statement. “The recession is now making itself more visible, and all signs are that the downward trend will continue for some time.”

Faced with mounting losses on loans in recession-hit economies, where bad loans have shot to highs of 18% of total lending in Latvia and 24% in Ukraine, Swedbank is trying to cut costs and lower its risk profile to secure funding and ride out the storm. Swedbank will continue to close branches and increase staff cuts as it takes a defensive stance, in anticipation of further economic hardship in the region, having followed a more aggressive path of expansion, the bank will be returning to more traditional practices.

“We are taking the necessary steps to right-size business units to reflect the lower economic activity in the banking sector as a whole,”  said Wolf  “We expect impaired loans to increase in the second half but it will be less than in the first half”

The negative results came after a mission from the International Monetary Fund visited Latvia recently in order to negotiate the release of a € 200 mln ($283m) tranche of a €7.5bn emergency loan agreed late last year. The IMF has held back the funds while it seeks commitments from the Latvian government over structural reforms, increasing nervousness that the rescue package could unravel.

Swedbank assured investors that it was strong enough to absorb its Baltic losses, quashing fears it would have to raise fresh capital. The bank’s chief financial officer, said the bank had “a very resilient capital situation”

Another Swedish bank – SEB, the second-biggest banking group in the Baltic region after Swedbank, is to report activity results next week. Analysts forecast that its operating profits will be down more than 40 %.