Australia ETF Offers Play on Commodities/Weak U.S. Dollar

| About: iShares MSCI (EWA)

An exchange traded fund that invests in Australia stocks is positive for 2011 but momentum has slowed recently as the near-term outlook on the country’s economy begins to weaken.

The $3.1 billion iShares MSCI Australia (NYSEARCA:EWA) is up 3% year to date. The ETF is seen as an equity-based bet on commodities and a weaker dollar.

“An investment in EWA is sometimes viewed as an indirect play on economic growth in China and the Asia region, given its 30% weighting in export-focused materials and energy companies,” Morningstar says in an analyst report on the ETF. “The Australian economy has prospered in recent years, buoyed by the nation’s ample natural resources and supported by a stable government and economy. During the global economic downturn that started in 2008, Australia fared better than most.”

The ETF does not hedge its exposure to the Australian dollar so investors are exposed to the currency’s fluctuations against the U.S. greenback.

The leading index that projects Australia’s economic activity over the next three to nine months only grew 1.6%, dropping to its lowest level since September 2009, reports James Glynn for MENAFN.

“The growth rate in the index has steadily fallen from its peak in this cycle of 9.5% in March 2010,” commented Bill Evans, Westpac’s chief economist. “This is now the lowest growth rate for the index since September 2009. The growth rate has now been below trend since February 2011.”

The Reserve Bank of Australia previously stated that it will cut its expected economic growth projections for 2011 due to soft consumer demand and a tepid recovery in the coal industry after the floods earlier this year.

Australia’s Prime Minister, Julia Gillard, believes that the economy is set to expand, pointing to the $430 billion in investments in the resources sector, low unemployment and sound fiscal finances as sold fundamental factors supporting the economy,according to 9News.

Consumer prices rose 1.6% in the second quarter as a result of rising volatility in the Middle East and the summer floods, reports Siobhain Ryan for The Australian.

Nevertheless, last week, Westpac was the first major bank to project interest cuts, instead of rises, due to growing uncertainty. The central bank has hinted that the cash rate may be put on hold.

iShares MSCI Australia

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For more information on Australia, visit our Australia category.

Max Chen contributed to this article.