iShares Asia Region ETFs Weekly and YTD Returns

iShares MSCI S. Korea (EWY) led all advancers, pacing a bullish performance among Asia region iShares country ETFs. After two weeks of subdued buying and some profit-taking, the bulls were back last week.

iShares Malaysia (EWM) gained 1.9% to recoup more than half its 2.9% loss two weeks ago. It is now up over 33% on the year.

iShares S&P 500 (IVV) gained 1.5%, increasing its year-to-date return to 8.6%.

Although the S&P 500 is trailing the performance of other benchmarks and the 20%-plus returns of some country funds, it continues to outperform funds in Northeast Asia, except of course for S. Korea, which climbed 4.1% last week and is now up nearly 20% for the year.

iShares Japan (EWJ), which has been a laggard most of the year and especially since late February, posted the second best return among the funds surveyed, gaining 2.8% last week and now up 3.3% in '07.

See the chart below for last week's results. There are two sets of returns for each ETF: the past week [light blue] and year-to-date [purple].

The bars for the iShares S&P 500 index (IVV) are colored differently for comparative purposes.

Click to enlarge chart

Disclosure: The author does not own shares of any funds mentioned in this article.

Here is a list of the relevant ETFs and their tickers.

iShares Australia (EWA)
iShares FTSE/Xinhua China 25 (FXI)
iShares Hong Kong (EWH)
iPath ETN MSCI India (INP)
iShares Japan (EWJ)
iShares Malaysia (EWM)
iShares Singapore (EWS)
iShares S. Korea (EWY)
iShares Taiwan (EWT)
iShares EAFE (EFA)
iShares Pacific ex-Japan (EPP)
iShares S&P 500 (IVV)

Comments

[Michael Bom...:]

Hey Steven,
I'm not familiar with the differences between the S. Korea ETF and the Korea Fund CEF (KF), but KF was the 2nd best returning CEF/ETF on the week with 9%, including 3% alone on Friday. Do you think this was more likely a CEF valuation problem or a difference in held assets?

2007 Jun 03 07:17 PM

[Steven Towns:]

Hi Michael,

I don't follow CEFs as closely as I do the iShares country-based funds. However, I am aware of the big gains last week for The Korea Fund (KF) and The Korean Equity Fund (KEF). In fact, CEFs paced advancers among Japan funds as well. I now see JOF is trading at a premium, whereas until recently, it was trading at a discount and if I remember correctly, it wasn't too long ago at double-digits.

I believe the gains in the CEFs have a lot to do w/ two main points: (1) discount/premium -- obviously in this case, the discount is creating buy interest, shortening the market-NAV gap; (2) composition of funds -- but in the case of S. Korea, you really don't see much difference in the names and %s of the top-10 and 25 positions, but there is some, which could explain. Also, EWY is shown as having 91 holdings, versus 62 for KF and 33 for KEF. This is per Morningstar, but note the last updates for each were scattered with 4/30/07 for EWY and 10/31/06 for KEF.

Despite last week's gains, I'm still seeing both Korean CEFs trade at discounts, -5.8% for KF and -9.3% for KEF, according to Morningstar.

A recent article by Mark Hulbert focused on the N. Korean nuclear threat and its impact on valuation.

In general, S. Korean stocks have more attractive valuations than those in China, Japan and assumingly than those in high flying markets in SE Asia.

Interestingly, the S. Korean won has strengthened against the dollar, while the yen has been weakening, which negatively impacts the competitiveness and financials of export-oriented South Korean companies -- however, the stronger won is a plus for American investors.

Lastly, put up a ytd chart of EWY, KF and KEF and you'll see EWY is clearly outperforming. It is also has more liquidity and lower fees.

2007 Jun 03 08:04 PM

[Frank Li:]

This is a great chart. I had no idea that the US market had outperformed Taiwan, Japan, Hong Kong and China year to date on even a dollar adjusted basis.

Any views on why that is?

2007 Jun 04 02:36 AM

[Steven Towns:]

Thanks Frank!

The U.S. has been outperforming NE Asia, esp. since the Feb. sell-off -- except recently in the case of S. Korea. Note U.S. outperformance of China (referring to FXI, as surveyed above) is misleading, because the main Chinese benchmarks are up around 70% last count, even with the latest drop. FXI is nowhere near that in '07.

One idea why the U.S. is outperforming Taiwan, Hong Kong and Japan perhaps relates to the correlation and interdependence of the three, limiting capital flows on concerns of a U.S. slowdown.

Other reasons relate to valuation and sentiment, since Hong Kong already had a nice run last year and investors/traders appear quick to lock in profits as they do in Japan.

There's also political risk and more direct spillover from items related to China as these countries are closer in proximity and have the deepest economic ties. For example, following the late Feb. sell-off, Japanese stocks fell more than any other country, even China!

Also and most interesting is the fact that Asian countries keep buying up U.S. assets. Japanese in particular are net buyers of overseas equities, whereas they are frequently net sellers of domestic equities.

2007 Jun 04 09:34 AM

[Walter Morton:]

The Demos think tank in the UK has written some great in-depth reports on selected Asian economies. They send a researcher to the country and spend a lot of time putting their data together. Reports are first-rate writing and free to download & review as a PDF. A very useful resource for any US investor who wants a detailed picture of a foreign culture and economy. Here's a sample written by Molly Webb on Korea: www.demos.co.uk/public...

2007 Jun 04 12:36 PM