The summer 2015 woes of China have resurfaced in winter 2016, making global stocks go ballistic. While China shook the global markets in August when its policymakers devalued the country's currency by 2% against the greenback, the latest Chinese economic data have been extremely weak to start the new year. Activity in China's services sector expanded at its slowest rate in 17 months in December.
There was a trading halt on the key Chinese bourses, with the indexes diving 7% to start the new year. The decline was the worst single-day performance since the 8.5% decline on August 24, 2015, which was the root of the global market rout last summer.
Additionally, China's central bank guided the yuan to a five-year low in offshore trading on Wednesday, which raised expectations of further weakness in the Chinese economy and sparked off fears of a currency war among the export-centric Asian nations. Many analysts are now projecting a free fall in yuan so that the currency can reach equilibrium.
As a result, hordes of global stocks have been offloaded, leading them to the most awful start to a year in 16 years. Spiraling woes in the Chinese economy and apprehensions of a currency war in the near future, especially among its Asian neighbors, led the Asian shares to suffer their largest weekly decline in over four years.
Export-centric Asian economies may be now forced to depreciate their currencies to stave off competitive pressure and rev up their exports, while growth issues in China have marred investing prospects of countries with close trade ties (see all Asia-Pacific emerging ETFs here).
In any case, the Asian region has been buckling under pressure for quite some time now, thanks to bleeding capital. Apart from slowing growth, the region faces threats from the Fed tightening and its ominous impact on the Asian currencies.
A continued hike in interest rates will add to the strength of the greenback, which in turn would devalue a set of Asian currencies. Moreover, a few Asia-Pacific economies are commodity-rich and tend to underperform massively in a period like this, when commodities are slouching.
All these offhand occurrences clarify the recent sell-off in the Asian shares. Below, we highlight a few Asia/Asia-Pacific ETFs which are highly susceptible to issues in China. These ETFs lost massively in the last five trading sessions (as of January 8, 2016) on the Chinese market upheaval, more specifically at the start of the new year. The funds are likely to bounce back more swiftly as soon as the doldrums in China calm down (see all Asia-Pacific (Developed) ETFs here).
iShares MSCI Australia ETF (NYSEARCA:EWA) - Down 9.6%
China is one of the largest trading partners of Australia, and thus acts as a key driver in the movement of the latter's economy. This is why Australia ETF EWA retreated 10.4% in the last five trading sessions (as of January 7, 2016). The fund has a Zacks ETF Rank #4 (Sell).
iShares MSCI South Korea Capped ETF (NYSEARCA:EWY) - Down 5.2%
Korea was also left in a quandary, as Chinese currency devaluation raised concerns over general trade. There are several South Korean companies, namely Samsung Electronics (OTC:SSNLF), Hyundai Motor (OTC:HYMLF), LG Corp. (OTC:LGEAF) and Daewoo which have big export markets and thus pared gains. Also, the nuclear test by North Korea had an adverse impact on the South Korean securities. EWY was down 5.3% in the last five trading sessions (as of January 7, 2016). The fund has a Zacks ETF Rank #3.
iShares MSCI Taiwan ETF (NYSEARCA:EWT) - Down 7.6%
Apart from South Korea, the Taiwanese economy also thrives on exports. As a result, Taiwanese companies also recorded losses on fears of losing on currency competitiveness to China. Notably, Taiwan houses one of the largest semiconductor companies in the world - Taiwan Semiconductor. In short, South Korea and Taiwan's stock markets will be hit by yuan devaluation in a passive way. This Zacks Rank #3 ETF lost 8.3% in the last five trading sessions.
iShares MSCI Singapore ETF (NYSEARCA:EWS) - Down 4.8%
Singaporean securities were under pressure lately on issues in the neighboring country China. This happened even after Singapore reported faster-than-expected expansion in the economy. EWS has a Zacks ETF Rank #3 (Hold).