It has been a grizzly three months for ETFs tracking Asia ex-Japan markets. China ETFs have been hammered by tepid economic data and a raft negative revisions to 2013 GDP growth forecasts. Indonesia, Southeast Asia’s largest economy, has seen its equities tumble because of a falling rupiah, a scenario the central bank there has been unable to stem to this point.
Thai and Philippine equities, among other factors, have been driven lower by fears the Federal Reserve is close tapering and ending its quantitative easing program. Even normally docile, lower-beta Asian markets such as South Korea and Singapore, a developed market with an AAA credit rating, have left investors wondering if Japan is the only Asian market moving higher. [Second-Half Rebound For Singapore?]
Among ETFs, there is at least one tracking an emerging Asian economy that has not bit the dust over the past three months: The iShares MSCI Taiwan ETF (EWT) . Often perceived as a China derivative play, EWT has been a pleasant surprise since April 9, gaining over 3% while the iShares FTSE China 25 ETF (FXI) is down more than 8%. [Opportunities in Emerging Markets ETFs]
Taiwan, like South Korea and Singapore, has a reputation for being one of the calmer investable Asian markets. EWT has a beta against the S&P 500 of just 0.7 and a three-year standard deviation of about 20.2%, according to iShares data. FXI’s three-year standard deviation is nearly 23.4% while that metric reads almost 23.8% for the iShares MSCI South Korea Capped ETF (EWY) .
Another reason EWT has remained steady while other emerging markets have flailed is sector weight. Many of the most popular single-country emerging markets ETFs are heavily allocated to either financial services, energy or materials stocks or a dangerous combination of two of the three or all three. EWT features an almost 54% weight to technology and scant combined exposure to materials and energy names. [Apple/Samsung Breakup Could Benefit These ETFs]
EWT’s technology exposure does make the ETF vulnerable to the whims of export demand, but there are some potentially positive catalysts looming on that front. Yuanta-Polaris Research Institute, a Taiwanese think tank, said it expects the country’s exports to accelerate in the second half of this year, lead by rising demand from the U.S. and Europe, according to Focus Taiwan.
Taiwan’s June imports increased, perhaps indicating exporters are preparing for a busier second half, the think noted. Should the increased export scenario materialize, EWT should remain one of the more reliable emerging markets ETFs for the remainder of this year.
iShares MSCI Taiwan ETF
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
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