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Asia ETFs in Focus as U.S. -North Korea Tensions Flare Up

Zacks Equity Research
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As Donald trump cancelled a key summit in North Korea, Asian shares went down. On May 24, South Korea's Kospi fell 0.65% while Japan's Nikkei declined 0.3%. Later investors fears were calmed down by North Koreas measured response to the cancellation. MSCI Asia-pacific index fell flat outside Japan and on Wall Street the S&P 500 closed at 0.2% lower.

US-North Korea: Understanding the Conflict

U.S.-North Korea bitterness dates back to early 2017, with Kin Jong Un’s nuclear ambitions overshadowing those of the United States. In fact, in early 2017, Kin Jong Un announced that North Korea was in the last stage of preparing an ICBM missile and said in his speech that any country can conduct nuclear tests and build security infrastructure for its own safety. It sparked off tensions globally and both Japan and South Korea complained to international agencies and US seeking help.  

After prolonged confrontation and verbal exchanges in 2018 presidents of both US and North Korea decided in a meeting that North Korea will not threaten the neighboring countries with any more missile testing program.

The failure of the meeting was because Trump was expecting North Korea to give up its entire fleet of nuclear arsenal. North Korea believes it needs the warheads for its own security. Also, with South Korea letting the United States set up its army bases, North Korean leaders believe that they always have to be prepared for any invasion by Trump's army.(read: An End to North Korea Fears? ETFs to Watch).

Country ETFs in Focus

As Asian shares fell amid tension and uncertainty let us try to observe how the Asia ETFs have reacted on May 24.

Deutsche X-trackers MSCI AC Asia Pacific ex Japan Hedged Equity Fund (DBAP)

The fund seeks investment results of the MSCI Asia Pacific ex Japan US Dollar Hedged Index. It has 636 holdings in its basket and charges an annual fee of 60 basis points. DBAP has AUM of $2.9 million and an average daily volume of 1090. As for sector outlook Information Technology, Financials and Consumer Discretionary are the top three with weightage of 24.7%, 23.8% and 6.9% respectively.

In terms of individual holdings SGX Nifty 50 Index Futures (7.9%), Tencent Holdings Ltd (4.9%) and Samsung Electronics (4.04%) comprise the top three stocks. Geographically China, Australia, South Korea and Taiwan have the largest exposures in this fund with 28.6%, 17.3%, 14.8% and 10.7% respectively. It gave negative returns of 0.97% since May 24.The fund has daily volume of 1140. Also it has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook(read: Will the Rally Last in Japan ETFs?).

PowerShares China Real Estate Portfolio (TAO)

The fund is designed to measure and monitor the performance of the investable universe of publicly-traded companies and real estate investment trusts ("REITs") and is based on the AlphaShares China Real Estate Index. It has a fee of 70 basis points annually. The fund comprises of 67 holdings and has amassed assets worth $84 million. Average daily volume is 28200. The top three individual holdings in this fund consist of Country Garden Holdings Co Ltd (5.7%), China Overseas Land & Investment Ltd (5%) and Sun Hung Kai Properties Ltd (4.6%). The fund has lost 0.65% on May 24.

WisdomTree Asia-Pacific ex-Japan Fund (AXJL)

The fund seeks investment results of the WisdomTree Asia Pacific ex-Japan Index. It has an expense ratio of 0.48%. The fund has 216 fund holdings and controls $45.4 million of assets under its portfolio. In terms of country exposure Australia, Hong Kong and Taiwan are the three top countries with 21.1%, 20% and 15.8% exposure respectively. Also among individual holdings China Mobile, Taiwan Semiconductor and Samsung Electronics are the top allocations with none holding more than 7.3%. Financials, IT and Telecom are the dominant sector holdings with 21.3%, 16.3% and 14.4% exposure respectively. Average daily volume of trade is 5265. The fund lost 0.19% in the same time frame. The fund has Zacks ETF Rank #3 with a Medium risk outlook (read: Focus on Small Cap ETFs for Japan Exposure).

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GUGG-CHINA RE (TAO): ETF Research Reports
WISDMTR-AP-JPN (AXJL): ETF Research Reports
DEUTS-XT MS ASI (DBAP): ETF Research Reports
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