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Asia Business Optimism at 3-Year High: ETFs in Focus

Zacks Equity Research

According to a survey by Thomson Reuters and INSEAD, business optimism in Asia has risen to a three-year high in the second quarter of 2017.


The survey revealed that positive economic data, coupled with easing concerns about the future of the Chinese economy, contributed to this optimism in business sentiment.


The index depicts the six-month outlook of 101 firms and reads 74 in the April-June period, up from 70 in the earlier three months.


China scored a 75 in the business sentiment sub-index, up from 72 in the earlier three months. Recently, the inclusion of Chinese stocks in the global MSCI benchmark equity index led to a rally in the stocks (read: What Does the MSCI Inclusion Mean for China A Shares and ETFs?).


Japan showed tremendous improvement, as its reading surged to 83 in the discussed period compared with 61 in the last quarter.


The highest increase was recorded by South Korea, as it saw its sub-index number rising to 75 from 15 in the previous quarter. Singapore recorded the lowest score of 62 while Indonesia’s (iShares MSCI Indonesia ETF- EIDO sub-index score increased to 83.


Apart from these countries, sentiment rose in India (WisdomTree India Earnings Fund- EPI and Thailand (iShares MSCI Thailand Capped ETF- THD as well. However, it reduced in Australia (iShares MSCI Australia ETF- EWA, Taiwan (iShares MSCI Taiwan ETF- EWT and Philippines (iShares MSCI Philippines ETF- EPHE (read: Moody's Downgrades Australian Banks: ETFs in Focus).


Per Reuters, 56% of the 101 respondents expect a positive six-month outlook, while 37% had a neutral outlook and 7% had a negative outlook. Among the respondents, the most bullish were the Construction, Engineering and Transport and Logistics sectors. However, real estate and food and beverage sectors came up with the lowest sub-index score.


Let us now discuss a few ETFs that might be impacted by this piece of news (see all Asia-Pacific (Developed) ETFs here).


iShares MSCI Japan ETF EWJ


This fund is suitable for investors looking for a broad-based exposure to the Japanese economy. It seeks to invest in large cap companies.


The fund has AUM of $17.18 billion and charges a fee of 48 basis points a year. From a sector look, Industrials, Consumer Discretionary and Financials are the top three allocations of the fund, with 20.11%, 19.66% and 12.97% exposure, respectively (as of June 21, 2017). Toyota Motor Corp, Mitsubishi UFJ Financial Group and Softbank Group Corp are the top three holdings of the fund, with 4.19%, 2.39% and 2.09% exposure, respectively (as of June 21, 2017). It has returned 11.42% year to date and 21.41% in the last one year (as of June 22, 2017). As such, DXJ currently has a Zacks ETF Rank 3 (Hold) with a Medium risk outlook.


iShares China Large-Cap ETF FXI


This fund seeks to provide exposure to Chinese equities, serving as a pure play on the economy.


It has AUM of $3.15 billion and is a relatively expensive bet as it charges a fee of 74 basis points a year. From a sector look, Financials, Energy and Telecommunications Services are the top three allocations of the fund, with 51.74%, 11.77 % and 10.88% exposure, respectively (as of June 21, 2017). From an individual holding perspective, Tencent Holdings Ltd, China Construction Bank Corp and China Mobile Ltd are the top three allocations of the fund, with 9.14%, 9.03% and 7.75% exposure, respectively (as of June 21, 2017). The fund has returned 14.49% year to date and 24.76% in the last one year (as of June 22, 2017). FXI currently has a Zacks ETF Rank 3 with a Medium risk outlook.


iShares MSCI South Korea Capped ETF EWY


This fund is the most popular in the space offering exposure to South Korean equities.


It has AUM of $3.71 billion and charges 64 basis points in fees per year. Information Technology, Financials, and Consumer Discretionary take the top three spots with 38.77%, 14.13% and 13.43% allocation, respectively (as of June 21, 2017). Samsung Electronics Ltd, Sk Hynix Inc and Hyundai Motor are the top three stocks with 23.05%, 4.75% and 3.11% allocation, respectively (as of June 21, 2017). The fund has returned 26.74% year to date and 36.58% in the last one year (as of June 22, 2017). EWY currently has a Zacks ETF Rank 3 with a Medium risk outlook.


IShares MSCI Singapore Capped ETF EWS


This fund focuses on Singapore equities and is the most popular option for exposure to the economy.


The fund has AUM of $593.60 million and charges 48 basis points in fees per year. Financials, Real Estate and Industrials are the top three sectors of the fund, with 37.08%, 20.33% and 18.28% allocation, respectively (as of June 21, 2017). DBS Group Holdings Ltd, Oversea-Chinese Banking Ltd and Singapore Telecommunications Ltd are the top three holdings of the fund, with 12.78%, 11.31%, and 10.35% allocation, respectively (as of June 21, 2017). The fund has returned 17.41% year to date and 17.63% in the last one year (as of June 22, 2017). EWS currently has a Zacks ETF Rank 3 with a Low risk outlook.


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ISHARS-JAPAN (EWJ): ETF Research Reports
 
ISHARS-CHINA LC (FXI): ETF Research Reports
 
ISHRS-MS TAIWAN (EWT): ETF Research Reports
 
ISHARS-AUSTRAL (EWA): ETF Research Reports
 
ISHRS-MSCI THAI (THD): ETF Research Reports
 
ISHARS-MS INDON (EIDO): ETF Research Reports
 
ISHRS-MS SNGPRE (EWS): ETF Research Reports
 
WISDMTR-IN EARN (EPI): ETF Research Reports
 
ISHARS-S KOREA (EWY): ETF Research Reports
 
ISHARS-MS PHILP (EPHE): ETF Research Reports
 
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