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Last week, only two indices dropped in our international ETF trend table. Notably the top nine countries all gained as investors shrug off Egypt turmoil.

Taiwan (NYSEARCA:EWT) stood out again and gained nearly 14% in the past three months. Taiwan’s GDP grew a blistering 10.47% in 2010, the fastest in 23 years. The strong momentum is expected to continue into 2011 with an estimated GDP growth rate of 5%. Robust trade with China has been the main driver behind Taiwan’s solid recovery. The island signed a sweeping trade deal with China (NYSEARCA:FXI) in June of 2010 and China is the largest overseas markets for Taiwanese products. At the same time, Taiwan also supplied a large amount of manufactured components for Chinese factories to assemble and export. The island’s exports surged to $275 billion last year, with exports to China accounting for about 42% of the total export volume.

The growing dependence on China for the Taiwanese economy could be a double-edged sword, however. With China’s policymakers focused on cooling down the country's overheating economy and engineering a soft landing for the country, Taiwan’s reliance on China could limit its ability to steer its own course.

That said, we believe investing in Taiwan (EWT) is actually a better way to gain exposure to the Chinese economy and provides a hedge against a potential slowdown in the Chinese eonomy due the island’s vast network in the developed markets to sells its products.

Also, an export-driven economy, South Korea (NYSEARCA:EWY) finds itself in a similar situation. A quarter of the country’s total exports were bound for China last year, but the country’s increasing economic ties with China could pose a threat to its economy. As the Chinese central bank has recently announced a series of rate hikes, this move will likely to strengthen the yuan further, thereby making Korean exports less attractive as the korean won also gained strength against a weakening US dollar.

To summarize, without much clarity with regards to China’s ability to sustain its growth and with the Chinese government’s intense focus on keeping calming down inflation and cracking down on real estate speculation, it’s challenging to predict whether Taiwan and Korea’s reliance on the Chinese markets will play to their strength or weakness. But given strong fundamentals in the short term, we believe EWT and EWY would make strong momentum plays and are great ways to get exposure to the robust Asian economic growth for your portfolio.

Assets Class

Symbols

02/04
Trend
Score

01/28
Trend
Score

Direction

Taiwan

EWT

17.05%

13.44%

^

South Korea

EWY

16.43%

14.73%

^

Russia

RSX

16.07%

12.03%

^

Canada

EWC

13.37%

10.15%

^

Malaysia

EWM

12.2%

9.23%

^

Mexico

EWW

12.16%

9.53%

^

Germany

EWG

11.9%

10.63%

^

Austria

EWO

11.67%

9.06%

^

Australia

EWA

10.47%

5.43%

^

Hong Kong

EWH

10.43%

10.48%

v

Japan

EWJ

9.55%

6.63%

^

United Kingdom

EWU

9.04%

4.83%

^

The Netherlands

EWN

8.66%

4.27%

^

Singapore

EWS

8.28%

7.72%

^

Italy

EWI

8.03%

3.2%

^

Switzerland

EWL

7.88%

7.62%

^

France

EWQ

7.58%

5.3%

^

South Africa

EZA

6.06%

1.5%

^

Spain

EWP

5.96%

0.47%

^

Belgium

EWK

4.94%

1.83%

^

China

FXI

1.23%

-0.06%

^

Brazil

EWZ

-0.54%

-0.02%

v

India

INP

-4.5%

-4.99%

^




Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Taiwan and South Korea ETFs: A Safer Way Get Exposure to China