ETF XRAY

Hong Kong Exports Fall with ETF

By Carl Delfeld of Chartwell ETF

Export-dependent economies in Asia and the exchange-traded funds that track their markets are vulnerable to declining and oftentimes negative growth. Hong Kong’s (EWH) exports fell for the first time in five months in November according to Bloomberg, worsening the outlook for an economy already in recession. Overseas sales declined 5.3 percent from a year earlier, to 231 billion Hong Kong dollars ($29.8 billion), the government said, after gaining 9.4 percent in October. Asia’s export-dependent economies are being battered by falling demand for electronics and textiles. Imports fell 7.9 percent, to 239 billion Hong Kong dollars, leaving a trade deficit of 8.2 billion Hong Kong dollars.

Free ETF Pick is Play on Infrastructure Spending

By Carl Delfeld of Chartwell ETF

With a global slowdown crashing down upon us, this may not seem to be the best time to invest in infrastructure or emerging markets but I believe this sector will lead the recovery. This investment theme is tied to two unmistakable trends: the urbanization and infrastructure gap in emerging nations.

In 1975 there were only three cities in the world of over 10 million. In 2008, there are 20 cities of which 15 are in emerging markets. China alone has over 100 cities with a population exceeding 1 million. Along with this urbanization has come stronger economic growth and expanded international trade.

This means that unless these countries build more airports, roads, railways, seaports, and pipelines, they will literally choke on their growth. Morgan Stanley predicts that $22 trillion will be spent on these projects over the next decade. This also include communications infrastructure like mobile telecommunications and cable providers.

An ETF that plays into this theme is our ETF Pick of the Week - for a description of the ETF and advice on timing and risk management and to receive limited time 50% offer, please go to:

Free ETF Pick of the Week & Special 2009 Offer

 Here are some interesting facts that highlight the infrastructure opportunity.

• Only 5% of Brazil’s roads are paved
• Canada recently launched a $33 billion infrastructure plan
• China is planning to build 97 regional airports by 2020
• The top 20 container terminals have seen growth of 42% during the past three years
• Mumbai has an astounding 18,424 people per square mile (New York has 1,274)
• South Africa is 4th fastest mobile phone market in the world
• Mexico City will soon pass a population of 20 million
• China is spending 10% of its GDP on infrastructure a year    

Thai ETFs Rise as Country Gets a New PM

By Carl Delfeld of Chartwell ETF & Chartwell Partners Asset Management

The Thai economy and the Thai Fund (TF) and iShares Thailand ETF (THD) have all been buffeted by political turmoil and outright chaos. In only four months there have been three prime ministers. In comparison, Japan's politics looks like a calm ocean of stability.

Tim Johnston writes from Bangkok for the Financial Times that Abhisit Vejjajiva became Thailand’s third prime minister in four months yesterday. The leader of the opposition Democrat party was voted into power by parliament in a deal that many hope will end six months of political paralysis.

Mr Abhisit, a youthful forty-four years of age and  educated at Eton and Oxford, won a parliamentary vote called after Somchai Wongsawat was removed from office ten days ago by the Constitutional Court. The Supreme Court now appears to have a veto on duly elected representatives.

The new UK-born economist leader has promised a rapid disbursement of government funds to try to revive the faltering economy. But with tourism, foreign direct investment and exports all in retreat due to the global economic slowdown and domestic political turmoil, his administration will have its hands full.

Panitan Wattanayagorn, a political scientist at Bangkok’s Chulalongkorn University, said: “The first order for the new government is to restore confidence in the economy both internationally and domestically. They need to come up with a rescue package.”

The political impasse was broken as the military leaned on many members of the coalition led by Mr Somchai’s newly formed Puea Thai party to change sides. The Democrats, who won more than 34% of votes cast in last year’s elections, now lead the ruling coalition. 

German (EWG) Growth Going Negative

By Carl Delfeld of Chartwell ETF & ETF Pick of the Week

Two weeks ago, Wolfgang Muchau of the Financial Times forecast that the German economy would contract between 2 and 4% in 2009. What looked to some like an offbeat forecast has now become conservative. Last week, two of Germany’s large economic institutes forecast a decline in growth for 2009 of 2 and 2.2%, respectively. Norbert Walter, chief economist of Deutsche Bank, said a contraction of 4% in 2009 was possible. Some believe the contraction will continue well into 2010.

And if global trade continues to contract at current rates,the numbers will get worse. Germany ran a current account surplus of 7.6% of gross domestic product in 2007. This means that a global trade slowdown will impact Germany disproportionately hard. Last week’s news about the 2.2% year-on-year fall in Chinese exports in November is an omen of deteriorating global trade volumes. To make matters even worse for Germany, the real exchange rate of the euro is going the wrong way.

The iShares German ETF (EWG) is facing some tough headwinds - find out the best way to get at smaller German companies by joining Chartwell ETF today. 

Fed Tragically Following Japan's Mistakes

By Carl Delfeld of Chartwell ETF and Chartwell Partners Asset Management

If the Fed reduces benchmark US interest rates tomorrow and perhaps cuts the rate to zero, it will loose any remaining leverage over markets, possibly begin a run on the US dollar and increase the likelihood of America following Japan's policy fiascos that led to a lost decade.

Japan's benchmark was stuck at zero for many years and only recently has been raised to 0.3%. This certainly has not helped Japan's anemic economic growth rate, consumer confidence or its stock market! There are many better policy options for turning around the credit crunch - namely cutting taxes on hard-pressed consumers and tying bailouts of financial institutions to putting capital back to work to grow the US economy.

The consensus forecast suggests US rates to be cut from 1% to 0.5% but there is a possibility that the Fed will go lower. Analysts expect the Fed to step up purchases of mortgage-related securities in an effort to reduce home loan rates and it could also start buying long-term Treasury bonds, reducing the benchmark rate for the corporate bond market.

ETF Pick of the Week: Small Cap Emerging Markets (DGS)

By Carl Delfeld of Chartwell ETF and ETF Pick of the Week

 Here's my ETF pick for this past week.

WisdomTree Emerging Market SmallCap (DGS)

Reasons for Selection:

1) Relative to emerging-markets large caps, this fund has far less exposure to commodities producers or telecoms while concentrating instead in local consumer and business services, which should hold up relatively well as growth in emerging economies slows.

2) DGS also has far smaller investments in the BRIC markets than its larger-cap oriented competitors.

3) The companies in the DGS basket are collectively also trading at a P/E ratio of 7 and a surprising low price/cash flow ratio of 4.7.

Catalyst:  Investors are realizing that smaller emerging market companies may experience the January effect and are more attractively priced and perhaps more insulated from the turmoil in global markets.

Tip:  As a hedge, couple DGS with the inverse emerging market large cap brother (EUM).

The China Battle: FXI vs. FXP

By Carl Delfeld of Chartwell ETF

The battle between China ETFs such as (FXI) and the ProShares Ultra Inverse China ETF (FXP) has been an interesting one with wide swings during the past year. FXI is up about 40% from its low but FXP is still substantially ahead on a year-to-date basis. Which approach will win out in 2009?

Chinese economic growth is declining rapidly. Exports fell in November for the first time in almost seven years. With demand in many of its main markets slowing sharply, Chinese exports declined 2.2 per cent from a year earlier. Imports also fell 17.9% from a year earlier, according to Chinese customs figures, prompting the government to announce plans to further boost the economy.

About 2/3 of toy exporters have already gone bust this year and orders from foreign buyers and overall orders from foreign buyers have fallen off a cliff. More importantly, investment, which makes up about 50% of China’s GDP is declining. Foreigners are investing and buying less: November foreign direct investment fell by a third from the previous year. Deflation is even a possibility, with annual producer price inflation plunging to 2% in November, less than one-third the October reading.

Despite all this bad news, China bulls have taken heart from beaten down valuations and the recent actions by China’s mandarins. Interest rates and bank reserve requirements have been cut, infrastructure spending announced export tax rebates and China’s currency has even come back a bit in a bid to help exporters. China’s chief worry is about unemployment, capital flight, political turmoil and deflation. The near-term headline news will not be pretty.

Do you have a China and Asian strategy for 2009? Join Chartwell ETF today and receive some independent intelligence.

 

China, India, Running Out of Growth Options

By Carl Delfeld of Chartwell ETF

China’s expansion over the past decade, has receded and seems likely to be sharply reduced next year, according to most watchers though the World Bank projections seem awfully optimistic to me. The stock market is in the doldrums and property values in many cities are off more than 30%.

On Monday, J.P. Morgan cut its fourth-quarter growth forecast for China to 7.7%, and other analysts predict that number could hit 5% next year. How is China going to produce the new 25 million jobs it needs to avoid intense political pressures?

Government analysts are looking to consumers, especially the country’s hundreds of millions of high-saving peasants, to pick up much of the slack. “If we can boost people’s confidence and they spend more money, it will not only be beneficial to China but it will help stabilize the world’s economy,” Zhu Guangyao, the assistant finance minister, said last week.

But this is not plausible given the economic slowdown. Consumer spending makes up 35% of China’s GDP and that number has been dropping since the 1980s, when it stood at 50%. The Chinese like to save money given the almost total lack of any safety net to save them if financial disaster strikes. And what about the much publicized China infrastructure spending plans? The details and timetable are murky and even if it goes full tilt the effects will not be felt until a mid next year at the earliest.

Meanwhile, India has been suffering the effects of the global slump by losing capital as Western investors jump to the security of American Treasuries. This has dealt a blow to Indian banks and company balance sheets. In addition, the Indian treasury is already hard pressed and therefore cannot launch a big stimulus measure.  

Infosys recently scaled back its projections for the year and expects revenue to expand 13 to 15% sharply below the typical 30% annual expansion. Like many of India’s outsourcing companies, Infosys is heavily dependent on the financial sector, deriving a third of its revenue from big foreign banks. Infosys is also very dependent on the American economy with two-thirds of its business coming from the United States. 

 

 

 

 

Harvard Top Heavy in International ETFs

By Carl Delfeld of Chartwell ETF

Harvard University's $36.9 billion endowment has suffered sharp losses but according to Indie Research it is placing some bets on undervalued international markets using exchange-traded funds.

Harvard's U.S.-listed equity holdings are quite diversified but have a definite international bias and Asia tilt similar to Chartwell ETF's approach.

Looking at Harvard's top U.S.-listed holdings at the end of  the third quarter, the endowment's top-three positions were in ETFs: iShares MSCI Emerging Markets Index (NYSE:EEM - News), iShares Russell 2000 Index (NYSE: IWM- News), and iShares MSCI Brazil Index (NYSE: EWZ -News). Other ETFs among Harvard's top holdings included iShares FTSE/Xinhua China 25 Index (NYSE: FXI - News), Vanguard Emerging Markets ETF(NYSE: VWO - News), and iShares MSCI Taiwan Index (NYSE: EWT - News).

Perhaps you should follow Harvard's forward looking strategy. So far this year emerging markets have suffered $48 billion in outflows compared to $98 billion of inflows from 2003-2007.  

India ETFs on Hold Through Election?

By Carl Delfeld of Chartwell ETF

I tend to avoid India ETFs as the country approaches an election and the terrorist siege in southern Mumbai, not far from its financial district, is another burden that will likely lead to investors sitting on the sidelines to see the broader implications of this brazen act.

India’s economy had already been slowing significantly, because of the global credit crunch and the rupee’s decline with most economists cutting GDP growth prospects in half for 2008 and 2009. The country’s leading stock market index, the Sensex, has already been cut in half since January as foreign investors redirected billions of dollars out of the country. This forced liquidation is likely to continue.

“Of course there will be some setbacks” related to the attacks, said Hitesh Kuvelkar, associate director at First Global, a financial research firm. Even before the attacks, First Global predicted that India’s economic growth could slow to about 6% in 2009 and less than 4% in 2010. A much bigger issue than economic growth is how India will handle the increased tension with Pakistan and the disputed Punjab region.

The recent attacks, which left more than 250 people dead, made targets of foreigners, witnesses said. The heavily armed terrorists were able to bypass security at two of India’s most expensive hotels, and it has taken India’s military several days to quell the violence, raising questions about safety in even the most exclusive locations. 

But I will continue to watch valuations closely as they are being driven to historic lows. Looking ahead, at some point in the next 3-6 months could be the best entry point into India in at least a decade. Join Chartwell ETF to stay on top of India and thirty other global markets.