A Stealth Recovery In Emerging Asian ETFs?

by: Gary Gordon

There has been so much negativity with regard to emerging Asian equities over the last 12-18 months. Some of it has been attributable to concerns of a “hard economic landing” in China, while some of it has been due to fears regarding Europe’s recession and debt crisis.

Nevertheless, U.S. equities are at the higher end of the S&P 500’s trading range (1278-1420). And with one of my favorite emerging growth investments in iShares MSCI Malaysia (NYSEARCA:EWM) logging respectable year-to-date returns, I decided to check up on the progress of 10 of the most popular emerging Asian ETFs.

Year-To-Date Performance For 10 Popular Emerging Asia ETFs (Through 7/30)
iShares MSCI Philippines Index Fund (NYSEARCA:EPHE) 27.1%
Market Vectors Vietnam ETF (NYSEARCA:VNM) 21.3%
iShares MSCI Thailand Index Fund (NYSEARCA:THD) 14.9%
iShares MSCI Malaysia (EWM) 7.5%
WisdomTree India Earnings (NYSEARCA:EPI) 6.6%
SPDR S&P Emerging Asia Pacific (NYSEARCA:GMF) 3.5%
iShares MSCI China (NYSEARCA:MCHI) 1.3%
Market Vectors Indonesia (NYSEARCA:IDX) 0.8%
Guggenheim China Small Cap (NYSEARCA:HAO) -2.3%

Only 3 of the Asian ETFs have out-hustled the SPDR S&P 500 (SPY) through the end of July. On the other hand, 80% of these ETFs demonstrated positive 50-day slopes that are, by definition, uptrends. Thailand (THD), Malaysia (EWM) and the Philippines (EPHE) have not only had strong year-to-date performance showings, but they currently have positive slopes. Five other ETFs have turned a positive slope corner for the first time since March.

Using the 50-day slope, Guggenheim Small-Cap China (HAO) and Market Vectors Vietnam (VNM) are the only exchange-traded trackers in downtrends. Still, VNM managed to post the strongest percentage gains on the list.

Will the uptrends last? They may, in fact, be somewhat tenuous.

For instance, the current price of SPDR Emerging Asia (GMF) is above a 50-day moving average. What’s more, the slope is not only positive, but it has been rising since early June.

GMF 50

That said, GMF last demonstrated a positive, rising slope at the start of the year. Then, 10-year treasuries yields in key eurozone nations were falling; today, they remain stubbornly high at unsustainable levels.

It follows that emerging Asia ETFs are likely to take cues from a variety of upcoming data points. One, the European Central Bank (ECB) will need to purchase more sovereign debt. Not only do the overwhelming majority of economists, money managers and institutional traders expect it, there’s little hope for stocks of any region without the expected stimulus.

Second, policy easing in China needs to have verifiable benefits. For example, China’s recent 5-month high on its ”Flash” Manufacturing PMI needs confirmation. Moving from contraction to expansion in Chinese manufacturing will be key in the weeks and months ahead, not only for the domestic economy, but for neighboring Asian emergers that profit from regional trade.

For some of my clients, I am comfortable purchasing iShares Malaysia (EWM) on the strength of the country’s fundamentals and technicals today. Malaysia enjoys low inflation, solid domestic growth and remarkably low unemployment. Meanwhile, the ETF sports a 3.8% yield that rivals many dividend funds. Moreover, the current price for EWM is above a 50-day and a 200-day trendline.

EWM 50

By the same token, every asset and every asset class can depreciate rapidly. I do not take chances with client portfolios. It follows that every buy decision comes with a firm understanding of the conditions under which I would sell.

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

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