ETFs

Asian ETFs Fueling Global Economic Recovery

Indicators continue to show that Asia is fueling the global economic rebound, forcing many investors to turn to the region to seek returns. 

As a region, Asia has drawn attention due to its large growth rates and its ability to emerge out of the global recession with a V-shaped recovery.  Recently, the Monetary Authority of Singapore revalued its currency and stated that its economy is expected to expand as much as 9% this year, raising economic growth expectations for the second time this year.  This revaluation was Singapore’s way of raising interest rates, indicating that it is confident in its recovery measures.  The Asian nation’s economy has grown at an annualized rate f 32.1% in the first quarter from the previous three months. 

To further add to Asia’s appeal, South Korea recently witnessed its biggest drop in unemployment in nearly a decade.  The nation’s unemployment rate dipped down to 3.8 percent in March from 4.4 percent in February, moving it near full employment.  Other factors that make South Korea attractive include its heavy ties with economic powerhouse China and its growth rate in industrial production, a big part of the nation’s GDP.   Lastly, according to Moody’s, South Korea’s government bond ratings were recently upgraded from A2 to A1, a good indicator that the nation’s economy is strengthening.  A combination of these forces has led the Bank of Korea to raise its 2010 GDP growth forecasts to 5.2%.

The region as a whole has been able to pull itself up by its boot straps, mainly due to effective fiscal stimulus plans, which accounted for nearly 4% of the region’s GDP.  One reason these government backed stimulus plans were so successful was low consumer debt and a high consumer propensity to save. 

This way of life has further resulted in increased income levels and a widened middle class which will likely cause the domestic demand for goods and services to increase.   According to data released by the International Monetary Fund (IMF), demand from domestic consumption in some of these Asian nations is expected to add as much as 7% to their respective growth rates. 

A last factor that is benefiting the region is the recent increase in investor confidence.  According to Deutsche Bank AG and CMA Datavision, corporate credit risk in the region is falling.  This is illustrated through a fall in corporate credit default-swap indexes which tend to decline as corporate creditworthiness increases and investor confidence builds.

Gaining access to these nations is relatively easy through the following ETFs:

  • iShares MSCI Singapore Index (EWS), which closed at $12.33 on Wednesday.
  • iShares MSCI South Korea Index (EWY), which closed at $52.56 on Wednesday.
  • iShares S&P Asia 50 Index (AIA), which allocates 29.5% and 10% of its assets to South Korea and Singapore, respectively.  AIA also allocates a significant portion of its assets to China and Taiwan, two nations expected to witness nice growth in the near future as well.  AIA closed at $42.44 on Wednesday.

When investing in these equities, it is important to consider factors that could potentially hinder economic growth and prosperity in these nations, such as economic bubbles in the region.   A good to way to protect against these factors as well as the inherent risks involved with investing in equities, is through the use and implementation if an exit strategy which triggers price points at which an upward trend could potentially be coming to an end. 

According to the latest data at www.SmartStops.net, an upward trend in these equities could come to an end if the following significant price points are reached: EWS at $11.77; EWY at $51.00; AIA at $40.96.  These important price points change on a daily basis and are reflective of market conditions.  Updated data can be found at www.SmartStops.net.

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