ETF Update: China, South Africa, Japan

China’s Strict Rules Could Impact Related ETFs

China is on everyone’s minds these days as the country gears up for its Olympic Games next week, and many are looking for ways the country’s activity could boost related ETFs.

But are tightening rules for businesses hurting them ahead of the games? Anthony Kuhn for NPR says that the government’s rules are giving rise to a new Olympic sport: griping.

The new regulations have given rise to some inconveniences for residents of Beijing: job fairs are canceled, the health ministry has asked hospitals to postpone non-essential procedures to free up medical staffs and there’s a ban on remote-controlled airplanes. A rash of bad press about the rules in other countries has led some to dub them the “No Fun Games.”

The tightening rules have some business owners worried. For example, police are getting strict about closing times, and it’s changed the odds for those who were hoping that an influx of visitors would bring in a windfall.

ETFs that could be affected by restriction include:

iShares FTSE/Xinhua China 25 (FXI), down 18.9% year-to-date
SPDR S&P China (GXC), down 22.8% year-to-date
Claymore/AlphaShares China Small Cap (HAO), down 17.8% since Jan. 30 inception

South African ETFs Represent a Mixed Bag

South Africa is showing renewed vigor that’s helping its currency ETF.

The South African rand strengthened against the euro for the second week in a row, showing the country’s strength and endurance in the global market. At the moment, the rand is outperforming high-yielding currencies, and it strengthened against the euro as interest rates neared their highest for the past five years, explains Garth Theunissen for Bloomberg.

The rand also offered the fourth-best carry-trade return against the euro among the 16 most popularly traded counterparts, as watched by Bloomberg. The rand gained 1.3% to 11.8922 per euro in Johannesburg.

Meanwhile, South Africa’s FTSE/JSE Africa All Share Index fell for the first time in three days, for a 2.2% decline last week, reports Garth Theunissen and Vernon Wessels for Bloomberg. The country’s inflation rate is likely to have risen for the 10th straight month, and it might be at its highest point since the targeted measure was introduced in 1998, reports Mike Cohen for Bloomberg.

The central bank has raised rates six times in one year, but has signaled that it’s done.

Several of the country’s biggest mining companies are in line to deliver earnings this week, including Anglo Platinum, AngloGold Ashanti on July 31 and Anglo American Plc on July 31.

ETFs that could be impacted by South Africa’s activity and the forthcoming earnings reports include:

WisdomTree Dreyfus South African Rand (SZR): Launched July 8
NETS FTSE/JSE Top 40 Index Fund (JNB): launched May 22; Anglo Platinum is 6.6%; Anglo American is 14.7%
iShares MSCI South Africa (EZA): down 13.8% year-to-date; Anglo Platinum is 5.4%; AngloGold is 4.3%

Recession Could Loom for Japan, Affecting ETFs

Japan’s slowing exports could have an impact on the country’s ETFs.

For the first time in four years, Japan’s exports fell year on year. The economy in Japan is dependent upon domestic consumption to sustain growth, and with exports down, a recession may be in the near future for the islands. Edward Hugh for Seeking Alpha reports that exports decreased 1.7% in June 2007, and were down 15.4% year on year in June, the 10th-largest drop since November 2003.

Central banks across Asia have been raising interest rates to fight inflation, which has slowed economic growth as well as lessening the demand for Japanese exports, reports Mayumi Otsuma for Bloomberg. The price of food and gas is putting the squeeze on household budgets.

Meanwhile, Japan’s stocks dropped after concerns overseas markets will shrink after Canon (CAJ) reported profits declined on a stronger yen with slowing sales in Europe and the United States.

Canon derives 80% of its revenue from abroad and stocks fell for the third straight month after reporting a third drop in a row in earnings.

ETFs that could feel the pinch: