Asia ETFs Rebound After U.S. Cuts Rates

Date: Monday, August 20, 2007
Author: Investor's Business Daily

Asian markets built on Friday's gains following the Fed's discount rate cut. Monday's surge came on an announcement from China's vice minister of commerce. He said the country's exports are likely to grow 27% this year to $1.231 trillion. Last year, exports grew 27.3% to $969.1 billion.

The main indexes in the Chinese and Taiwanese stock markets rallied 5.3%. The Hong Kong Hang Seng jumped 5.93%, while Indonesia's benchmark added 6.97% and Japan's Nikkei 225 lifted 3%.

WisdomTree Pacific ex-Japan High-Yielding Equity index DNH gained 2.7%.

These are most heavily weighted in Australia at 59.36% and 87.15%, of total assets, respectively. They also are heavily weighted in stocks from Hong Kong, Singapore and New Zealand.

IShares MSCI Pacific ex-Japan EPP added 2.45%. It has similar country weightings as WisdomTree's ETFs.

PowerShares Dynamic Asia Pacific PUA ticked up 0.63%. It's most heavily concentrated in Hong Kong at 37.4% of assets, followed by Australia, 26.7%, Singapore, 16.9%, and China, 12.4%.

Limited Subprime Exposure

The U.S. credit crisis sent shock waves throughout the world's markets. It has raised the cost of borrowing money globally.

But the impact on Asia will be limited, economists say. It weathered a financial crisis in 1997-98 brought on by risky investments in real estate, infrastructure and other areas.

"In a somewhat ironic roll reversal, it is now Asia that provides a safe haven from a volatile and uncertain U.S. economy," economist Daniel Melser of Moody's Economy.com said.

"Corporate balance sheets are strong and growth is well-diversified. Moreover, regional financial institutions have limited exposure to the subprime-linked securities causing problems stateside," he said.

Merrill Lynch concurred in a global economics report it released Monday.

Domestic Demand

"Decoupling" should support Asian demand as the U.S. slows," the report said. "Credit problems are more likely to affect global borrowers, not a region like Asia with high savings rates, current account surpluses and rising foreign exchange reserves."

Although Asian banks have invested in U.S. markets, exposure to subprime mortgages or corporate credit appear small, according to Merrill's research. It recommends investors in the export-dependent region target sectors that are not impacted by U.S. demand such as infrastructure, urbanization and consumer goods.