Four Country ETFs To Gain From Oil Price Crash

Without a modicum of doubt, oil has been the hottest and worst hit commodity this year. This is because it has been caught in a nasty web of persistent weakness in demand and global supply glut sending prices to a multi-year low. Notably, U.S. crude plunged to the lowest price of $34.42 per barrel since 2009 while Brent slumped to a level as low as $36.05 not seen in 11 years.

Oil production has risen all over the globe with the Organization of the Petroleum Exporting Countries (OPEC) continuing to pump near-record levels, and higher output from the likes of U.S., Iran and Libya. Additionally, the strengthening U.S. dollar backed by a rate hike is making dollar-denominated assets more expensive for foreign investors and thus dampening the appeal for oil. Further, the U.S. lifted bans on crude oil exports, which have been in place for 40 years. This has also been weighing on prices lately. 

On the other hand, demand for oil across the globe looks tepid given slower growth in most developed and developing economies. In particular, persistent weakness in the world’s biggest consumer of energy – China – will continue to weigh on the demand outlook (read: No Respite for Oil and Energy ETFs in 2016?).  

While the crash has crushed a number of oil producers and key oil producing countries raising fears of global deflation, it is at the same time benefiting the oil consuming nations. After all, lower oil prices make up a big chunk of either tax revenues or GDP growth opportunities (and sometimes both) in big oil importing countries. Additionally, persistent weakness has made oil extremely cheap for the countries that import them. It will lead to an expansion in balance of payments, increase output and reduce inflation in these countries, thereby paving the way for overall economic growth.

We have seen this happen in a number of countries over the past one year and, with the advent of ETFs, these nations are easier to play. In light of this, we have highlighted four country ETFs that could see smooth trading in the months ahead should oil price fall or remain below $50 per barrel.

iShares India 50 ETF (INDY – ETF report)

Lower oil prices are benefiting India the most as it is the world’s third largest importer of crude oil, accounting for two-thirds of crude oil requirements. It is tempering the country’s inflation, which tends to rise during a period of growth, and increasing consumer power for both spending and savings. This suggests good times ahead for the country as well as Indian ETFs in the coming months (read: Top-Ranked ETFs to Tap India’s Growth Story).

INDY is a large cap centric fund that provides exposure to the largest 53 Indian stocks by tracking the Nifty 50 Index. It is pretty well spread out across components with none of the securities holding more than 7.86% of assets. With respect to sector holdings, financials takes the top spot at 31%, closely followed by information technology (17%), consumer discretionary (11%) and energy (10%). The product has managed assets worth $758.2 million and trades in good volume of more than 326,000 million shares a day. It is a high cost choice in the space, charging 93 bps. The product has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. 

IShares China Large-Cap ETF (FXI – ETF report)

China overtook U.S. early in the year to become the largest importer of crude oil in the world. As China is the world’s most populous country and has a rapidly growing economy, the demand for oil consumption has been on the rise. The country imports nearly 60% of the crude it consumes. The best way to invest in China is through FXI, a product that has over $5.4 billion in assets (see: all Emerging Asia Pacific ETFs here).