Almost everyone remembers the famous line from the Rolling Stones, You can't always get what you want. Ironically, this is often how I feel about a number of Asia ETFs.
Let me start by reminding readers that I lived in Taiwan in the mid-80s and Hong Kong in the early 90s. What's more, I've traveled throughout Southeast Asia many times over. Indeed, my affection for the region may contribute to an unusually positive bias.
That said, I frequently acknowledge a number of limitations with respect to ETFs dedicated to Asia. For instance, there are some folks who may wish to take advantage of a growing middle class in China. With Hong Kong serving as a major hub for the mainland, should you be quick to select iShares MSCI Hong Kong (EWH)?
Unfortunately, EWH has a 60% weighting in financial firms and a meager 10% allotted to consumer discretionary companies. While the fund often moves in the direction I might expect SE Asia stocks to move on a given day, it still is grossly overweight the financial arena.
It is possible to escape a disproportionately large financial segment by utilizing the PowerShares BLDRS Asia ADR Index (ADRA). It has a 24% weighting in consumer discretionary Asian ADRs on U.S. exchanges, and a smaller 23% weighting in financial stocks. However, PowerShares BLDRS Asia ADR Index (ADRA) is dominated by a 50% weighting in recession-slammed Japan.
Now what is an investor supposed to do? He/she could look to SPDR Emerging Asia Pacific (GMF), yet the volatility of the emerging stocks may be difficult to swallow. Conversely, one could explore the iShares MSCI All County Asia excl Japan (AAXJ). Even this, however, comes with a 1/3 weighting in financial stocks.
There's no easy solution. Sometimes, you may have to go with the ETF that doesn't give you what you want. Then again, like the Rolling Stones finished with, ...you get what you need.
Of course, it wasn't that long ago when pundits touted South Korea as THE foreign market that everyone needed. After all, you had Warren Buffett intrigued with steelmaker Posco. And the bull market gains for iShares MSCI South Korea (EWY) over 6 years (October 2001-October 2007) approximated 500%!
Yet the 2008-2009 bear erased the bulk of buy-n-holder profits, many of whom hadn't discovered Korean stocks until 2004 or 2005. And by March of 2009, the 70% top-to-bottom nose-dive was epic.
Right now, though, many believe that things have brightened substantially for SK. Not only is iShares MSCI South Korea (EWY) up more than 25% YTD, but it has also managed to keep its emerging market status a little longer. Believe it or not, this gives the relatively mature market the opportunity to attract the hotter emerging market investor dollars.
These days, you also have Dr. Doom, Marc Faber, one of the more prominent bears on the Street, stating that South Korean stocks are the place to reinvest long-term. Mr. Faber recently commented that he didn't believe Korean stocks would revisit March lows. And he believes stock assets of the East will significantly outperform the West.
The iShares South Korea Fund (EWY) has an 18% weighting in Samsung, and Samsung is on an expectations-exceeding path. Similarly, South Korea's 2% interest rates may have helped it dodge a full-blown recession. The Bank of Korea has hinted at raising rates in Q4, which may be indicative that the country is getting back on a growth track.
Lastly, the charts seem to favor a South Korean renaissance. The 50-day moving average recently rose above the 200-day, and the current share price of EWY is above both trendlines.
If there's one, fairly sizable wrench in the spokes, it'd be the neighbors. North Korea's been firing off missiles with callous disregard. I mention here that tensions are escalating, but that is a major understatement.
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Disclosure Statement: ETF Expert is a web log (blog) that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
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