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New Zealand ETF Fights Strong Kiwi, Hits New Highs


The New Zealand dollar has gained 6.6% against its U.S. counterpart since early February. In theory, kiwi strength should be hampering New Zealand equities.

In reality, the opposite is true as the iShares MSCI New Zealand Capped ETF (ENZL) is up almost 17.5% this year. On Friday, ENZL, the lone New Zealand ETF, is higher by almost 1% on volume that has already eclipsed the daily average. Earlier Friday, ENZL hit another intraday all-time high, extending its gains since the start of March to nearly 9%. [Big Things From Small ETFs]

That easily trumps the 5.8% gained by the iShares MSCI Australia ETF (EWA) over the same period. In mid-April, Morningstar called New Zealand equities fairly valued, placing a hold recommendation on 60% of the country’s stocks while voicing concern about the utilities sector, 10.2% of ENZL’s weight.

Morningstar also said New Zealand’s telecom sector, 12.5% of ENZL’s weight, is fairly valued, but since April 15, ENZL has climbed 3.3%, indicating the ETF has reaped the rewards of a sector mix that features an obvious value tilt. Industrials, telecom and utilities combine for over 38% of ENZL’s weight. [Value ETFs Race to New Highs]

New Zealand is not perfect. The export-dependent country is grappling with the effects of the strong kiwi and there is evidence to suggest a housing bubble could be forming there. New Zealand’s rate of consumer is among the highest in the developed world.

In an effort to stem the real estate bubble, in March, the Reserve Bank of New Zealand became the first developed market central bank to raise interest rates. RBNZ hiked its official cash rate to 2.75% from 2.50% and further rate hikes are expected. [Rate Hike Lifts New Zealand ETF]

There is an upside to the proclivity for higher rates in Australia and New Zealand. ENZL has a trailing 12-month dividend yield of 3.45% while EWA’s 4.42%. The S&P 500’s dividend yield is not even 2%.

Another knock on New Zealand has been that the country is running a current account deficit, a scenario global investors are apt to monitor closely following prior repudiation of some emerging markets with vulnerability to external financing demands. [Mixed Bag on Account Surplus Trade]

However, buoyed by robust demand for agriculture commodities exports, New Zealand’s current account deficit is heading in the right direction.

“Deutsche Bank estimates that on the back of this data the annual current account deficit will sit at just 2.9% of gross domestic product in the first quarter, down from 3.4% in the fourth quarter of 2013 and below an average of over 5% between 1980 and 2009,” reports Lucy Craymer for the Wall Street Journal.

iShares MSCI New Zealand Capped ETF