International ETF Update: Single Country ETFs, Latin America, Poland, and China-Taiwan Relations

Single Country ETFs are World Travelers

Single-country focused ETFs are well-recognized for their investment benefits and instant diversification. They are one of the most simple ways to gain foreign stock exposure across a range of sectors, with less volatility and expense than single stocks.

Single-country ETFs offer instant currency diversification, with precise, and concentrated exposure. They take the guesswork out of single-stock picking from a faraway and unknown economy, says ETF Guide.

For a long time, iShares was one of the only providers of single-country ETFs, but lately we’ve seen the options expanding. The iShares line has 29 such funds, and this year has seen the launch of a number of single-country funds from Northern Trust, as well, and some of those cover new territories.

Among the offerings are:

• NETS ISEQ 20 Index Fund (IQE): Covers Ireland; launched June 16
• NETS PSI 20 Index Fund (LIS): Covers Portugal; launched May 21
• iShares MSCI Israel Capped Investable Market Index Fund (EIS): up 10.2% since March 31 inception
• iShares MSCI Malaysia Index Fund (EWM): down 17.5% year-to-date
• Market Vectors Russia (RSX): up 3.1% year-to-date

iShares MSCI Brazil (EWZ) and iShares MSCI Canada (EWC) are the two top-performing single-country ETFs year-to-date, up 3.5% and 8.9%, respectively.

Latin America May Be Slowing Its Economic Rhythm For ETFs

Is life returning to its trademark slow pace in Latin America as economies and ETFs suffer in the wake of the U.S. credit slump?

In Brazil earlier last week, the Bovespa stock index fell 10 points to its lowest level in 10 weeks after industrial output came in lower than economists’ forecasts, reports Alexander Ragir and James Attwood for Bloomberg.

On Thursday, the stocks continued their slide as the nation’s second-biggest airline forecast larger-than-expected losses, while Citigroup strategists cut estimates for equities on concern about slumping commodities, report Alexander Ragir and James Attwood for Bloomberg.

Record oil prices may be stoking the fire of inflation, leaving many to potentially get burned later this year. The latest inflation rate came in higher last month than it has in two years. High fuel and food prices are adding to the inflationary pressures. Will iShares MSCI Brazil (EWZ) be able to stave off the losses?

Chile is another economy that was reaping the rewards of its natural resources. The U.S. housing slump has hit home there, as rising energy prices are mixing with a cheap dollar and inflation is inevitable, reports Sebastian Loyd for Bloomberg.

iShares MSCI Chile (ECH) is feeling the pinch, down 8.6% year-to-date.

iShares S&P Latin America 40 Index (ILF) has positive numbers for the 3- and 6-month moving averages, and it is just a hair below its 200-day moving average. Year-to-date, it’s up 2.9%.

When considering single-country funds, be sure to look at the holdings and sector/company weightings. If you’re already invested in energy, then you might not be interested in Russia’s ETF, because it’s 42.6% weighted in the sector. Malaysia’s ETF is 30.9% weighted in financial services, and if you’re skittish about the industry, it may not be the fund for you.

Poland Has Potential As Top Holding in Frontier Market ETF

With the recent launch of the Claymore/BNY Mellon Frontier Markets (FRN), it is now possible to invest in the first U.S.-listed ETF that provides investors access to up to 41 countries considered “frontier markets.”

These markets are very important to consider given that many of the emerging markets, such as China, are now approaching more of a developed market status. One of these frontier markets worth noting is Poland.  When looking at FRN’s holdings by country, Poland sits atop the list at 23.5%.

Since 1990, Poland has pursued policy to liberalize its economy and has prevailed among transition economies. Gross domestic product (GDP) grew by roughly 6.5% in 2007 given rising private consumption, a jump in corporate investment, and EU fund inflows.

EU membership and accessibility to EU funds have generated a major boost to the economy since 2004. Although unemployment is falling rapidly, it was estimated at 12.8% in 2007, where it sat well above the EU average.  Important industries in the Polish economy include machine building, iron and steel, coal mining, chemicals, shipbuilding, food processing, glass, beverages, and textiles. Poland also has several important natural resources including coal, sulfur, copper, natural gas, silver, lead, salt, amber and arable land.

Poland’s economic performance is likely to improve, but in order to do so it must address certain deficiencies in its business environment. An ineffective commercial court system, a rigid labor code, “bureaucratic red tape,” and lower-level corruption keep Poland’s private sector from performing.

The new PO/PSL coalition government has made public its intention to enact business-friendly reforms, reduce the growth of public sector spending, lower taxes, and accelerate privatization.

Flights Between China and Taiwan Fly Freely, Adding to ETF Successes

China’s stocks and ETFs are up by the most in nearly three weeks, led by banking shares.

Two of the country’s largest banks - Merchants Bank and Citic Bank - reported that their first-half earnings had more than doubled, report Zhang Shidong and Chua Kong Ho for Bloomberg. Beijing North Star Co. also rose on speculation that next month’s Olympic Games will lure more tourists to the city. They’re expecting 1.5 million visitors.

Air China Ltd. was benefiting on optimism about adding more flights to Taiwan. The 60-year ban has officially ended as a Chinese tourist flight took visitors to the country, a lift-off that is anticipated to boost the economies of both countries and their ETFS.

The significance for the airline and the country is enormous, and China and Taiwan have agreed to start direct flights for tourists, symbolizing a reunification between the two governments, reports Eugene Tang and Tim Culpan for Bloomberg.

ETFs that may feel the winds of change:

• iShares FTSE/Xinhua China 25 Index (FXI): down 25.3% year-to-date; Merchants Bank is 3.7%; Citic Bank is 1%; Air China is 0.4%.
• SPDR S&P China (GXC): down 27.9% year-to-date; Merchants Bank is 1.7%
• iShares MSCI Taiwan (EWT): down 7.9% year-to-date

Comments

[vitaminc:]

FXI doesn't fully represent China but only the H share and Red Chip companies.

2008 Jul 08 08:29 PM