Shifting Away From the U.S. and Into Asia: An ETF Play

As the Dow hits new highs and the economy slows, I look for ways to shift holdings to Asia.

There is building pressure for a rally in Asian currencies:

1. The dollar has been gaining recently relative to the Yen.
2. The Chinese Yuan is still pegged to the dollar at an artificially low valuation.
3. At some point Asians are going to get sick of holding US Govt. IOU's.
4. Asian economies look to remain strong relative to the U.S. as they diversify trading partners away from the U.S.

The shares of Asian companies will continue to do well with or without the US economy and a strong dollar. There are two scenarios both of which favor Asian companies over the US ones for a US Dollar Investor:

1. Dollar remains strong relative to Asian Currencies: Asian companies continue to export
2. Dollar weakens: Dollar value of Asian Stocks do very well. While exports may decline a bit, inter-Asian trade is now picking up huge and the companies will benefit from local economic growth (not just exports).

How am I playing this? I like the Vanguard Pacific ETF (VPL) for its very low expense ratio of only 0.15% and its high weighting toward Japan. I also like Wisdom Tree ETFs - WisdomTree Pacific ex-Japan Total Dividend Fund (DND) and WisdomTree Japan Total Dividend Fund (DXJ). At 0.48%, they have higher expense ratios than Vanguard but still less than the more liquid Barclays iShares country specific funds like Ishares Japan (EWJ), iShares Singapore (EWS), and iShares Hong Kong (EWH) at nearly 0.59%.

Disclosures: I own VPL. I do not own but have traded EWS in the last two-years.

Comments

[Chamois16:]

The chinese yuan is not pegged to the US$; it was floated commencing 21 July 2005 and has risen slowly since. The Hong Kong Dollar is more closely tied to the US dollar

The writer seems to ignore arguably the best ETF to play a rising yuan (FXI) which consists mainly of robust mainland China companies (25 in all) whose earnngs and dividends are initially denominated in renminbi, rather than HK$, thus likely to pass along to HK and US ADR holders greater benefit than HK and other Asian shares.

2006 Nov 03 10:05 AM

[David Neubert:]

An revaluation of the Yuan will affect all Asian currencies.

And while the YUAN isn't officially linked to the US dollar anymore the way in which it's managed by the Chinese is a defact link.

I still prefer the basket of Asian companies as my way to play Asia over specific Chinese companies. I will give up upside to gain diversification and safety.

2006 Nov 09 06:04 PM