ETF XRAY

Malaysiapore ETFs

By Carl Delfeld of the Chartwell ETF Advisor and Chartwell Partners Asset Management

Like two turbine engines powering a jet plane, the Malaysian (EWM) and Singapore (EWS) markets and ETFs have been working smoothly in tandem to give investors superior performance over the last year and after a pullback, are attractively priced.

It seems that investors, especially foreign investors, have finally begun to appreciate that Malaysia offers many of the attributes of its southern neighbor. Although palm oil and other commodities are an important part of the Malaysian story, investors have begun to recognize that its economy is well diversified with 43% of GDP attributed to the services sector while agriculture represents only 8%. It also has attractive demographics with 32% of its population under the age of 15 - more than double the proportion in Japan. Economic growth last year was a respectable 6% and the country has moved solidly into the middle income circle of countries with a per capita income of $12,900.

All of these favorable trends are finally being recognized by global investors and have also given the country the strength to improve political and economic relations with Singapore.

This brings us to the increasing economic integration between the two countries which can be viewed as a dividend to investors as it fosters higher economic growth and political stability. To see how much better bilateral relations are today, it is helpful to look back to the foundations of both countries.

While disputes between the two countries continue over deliveries of fresh water to Singapore, relations are as good as they have ever been since Singapore's 1965 secession from the Federation formed in 1963 when the former British colonies of Singapore and the East Malaysian states of Sabah and Sarawak on the northern coast of Borneo joined the Federation.

There are concrete signs of this increased integration and cooperation. The bridge which opened in 1998 connecting Singapore and Johor, Malaysia has reduced the traffic congestion at the Johor-Singapore Causeway.

A great way to learn more about Malaysia, Singapore and Thailand is to join Carl on his luxury investment tour, "Investing Along the Orient Express"

Then there was the recent meeting between the Malaysian and Singapore premiers, Abdullah Badawi and Lee Hsien Loong, and their agreement to set up a Joint Ministerial Committee with oversight over economic cooperation in the Iskandar Development Region (IDR) in the state of Johor in Malaysia, separated from Singapore by a 1km long causeway. The region spans an area of 2,217 sq. km., which is about thrice Singapore’s size. Both sides quickly agreed to the introduction of ‘smart cards’ to facilitate the two-way traffic of Malaysians and Singaporeans to the IDR. On a regular work day it is estimated that more than 150,000 workers commute over the Johor-Singapore causeway to earn a better living.

On the security front, both countries are members of the Five Power Defense Arrangements (FPDA) which is a joint defense arrangement between Malaysia, Singapore, Australia, New Zealand and the United Kingdom.

How should investors invest in these favorable trends which are raising the profile of Malaysia, reducing the global investment community’s perception of country risk and raising expectations that its economic growth curve will continue?

A shotgun approach would be to invest in the MSCI iShares Malaysian exchange-traded fund (EWM) which is a basket of leading Malaysian companies and has an annual expense ratio of only 0.54%. Financial companies account for 33% of the fund’s exposure, industrial firms are at 18% and consumer staples and discretionary companies together make up an additional 29%.

The best and most direct approach would be to take a grubstake in Johor real estate. It is hard to imagine that prices will not escalate as investment in the region and IDR project gain momentum.

Investing in Malaysia is a back door strategy to investing in Singapore and dynamic regional economic growth. For more on putting Singapore and Malaysia into your global portfolio go to Chartwell ETF.

Asian Markets and ETFs Jump Across the Board

By Carl Delfeld of the Chartwell ETF Advisor

Asia-Pacific stocks and ETFs that track them are trading higher according to Barchart almost across the board on some optimism following yesterday's US rally: Japan +1.49%, Hong Kong +3.24%, China +2.75%, Taiwan +1.86%, Australia +1.78%, Singapore +0.54%, South Korea +0.76%, Bombay +0.11%.

Bullish factors in Asia included a 2.8% rally in BHP Billiton (BHP) on higher commodity prices and strength in gas and oil companies with the rally in crude oil prices to a new record high. London-based Standard Chartered Bank, which derives two-thirds of its revenue from Asia, rallied to a 3-week high on a favorable earnings report. And Industrial & C ommercial Bank of China rallied 3.4% after JPMorgan recommended China's largest bank as the "safest exposure to the sector."

In other Asian news, Thailand’s Election Commission on Tuesday found a ­ruling party politician guilty of vote-buying in last year’s general election, dealing a blow to political allies of Thaksin Shinawatra.

High inflation in Vietnam has led to the State Bank of Vietnam, the central bank, trying to drain liquidity from the financial system to hold down the value of the dong against the dollar. The central bank has pulled back its purchases of dollars leading to overnight inter-bank rates for the currency have reached as high as 40 per cent recently.

Stay on top of global news that can impact your ETF portfolio by going to Chartwell ETF.

Aussie Dollar and Chinese Inflation Surge

By Carl Delfeld of the Chartwell ETF Advisor and ETFfolio.com

ETF investors need to be aware that inflation in the Asia-Pacific region is creating upward pressure on two key currencies. What will be the impact on exchange-traded funds that track markets in the region?

The Australian dollar surged to a three-month high todays as speculation grew after a Reserve Bank of Australia’s policy meeting that further interest rate rises are on the horizon. The central bank raised interest rates by 25 basis points to 7% at its meeting earlier this month in an attempt to stem domestic inflationary pressures. The Australian ETF (EWA) responded positively in trading today, up nearly 2%.

Meanwhile, China recorded an inflation rate above 7 per cent in January – the highest in more than 11 years causing concern and raising the lilelihood that its currency would continue to strengthen to combat inflation. The National Bureau of Statistics on Tuesday said that inflation surged to 7.1 percent from 6.5 percent in December. Producer prices hit a monthly high of 6.1% - the highest in three years - due to winter storms, resulting transportation problems plus higher commodity prices.

The yuan has risen by about 13 per cent against the US dollar since mid-2005 but increased at an annualised rate of about 20% in January.

How are Chinese exports doing in light of the stronger currency and how should your global ETF portfolio be adjusted to take advantage of these developments? You need Chartwell ETF.

The Politics of Asian ETF Investing

By Carl Delfeld of the Chartwell ETF Advisor

Unlike most global investment advisors and strategists using exchange-traded funds, I pay a lot of attention to politics, both here in America and in overseas markets. The politics of a country tells me a lot about the probability of long-term economic growth and stability – vital ingredients for successful investing. It also reveals a country’s culture, business climate and durability in the wake of shocks like the real estate downturn. Countries with free and open political systems can take sledgehammer blows and come back fighting. The politics of countries and the ETFs that track them are important.

The relatively civil conduct of our campaigns and the fair, smooth transfer of executive power is a major reason why our markets are so attractive to global investors. Sure politics everywhere is a contact sport but we look pretty good compared to the fisticuffs this week in South Korea, the messy situation in Pakistan, and the ham-handed turnover of power in Russia (RSX) from Mr. Putin to Mr. Putin.

The current presidential campaign really has my blood pumping. The race between Senator Clinton and Senator Obama is tightening with John Edwards jockeying for an opening. The Republican race is even more fluid and open with the sudden rise of former Governor Huckabee posing a threat to former Governor Romney, former New York Mayor Rudy Giuliani losing steam in national polls and re-directing his efforts to big states like California and Florida. All this movement is creating an opening for the old lion Senator John McCain, whose campaign was left for dead only a few months ago, is staging a comeback in Iowa and New Hampshire.

Political risk is likely to play an increasingly dominant role in Asian markets in the coming year. Elections are due to take place in Taiwan with important ramifications for China while the result of the US presidential elections will have significant implications for relations with Asia, and in particular China. Korea (EWY) faces parliamentary elections in April, the results of which will be crucial to shoring up support for President-elect Lee Myung-bak.

Pakistan, with the death of Benazir Bhutto is the clearest example of why regional risk aversion is rising, but the last weeks of 2007 have produced others. In Thailand (TF), the People’s Power party, allies of deposed prime minister Thaksin Shinawatra, emerged as the largest party after Christmas Eve elections, but fell short of a majority. The shape of any new government, as well as the future of Mr Thaksin himself, remains unclear. Japan’s premier, meanwhile, not even three months into the job, is suffering from the same lack of confidence and popularity that led to the fall of Mr. Abe. Sure makes you pine for the strong agenda of former PM Koizumi when Japan's market (EWJ) was booming.

If you want to stay on top of important political trends and events in the world, go to Chartwell ETF today.

Hong Kong & Singapore Lead Asian Outperformance

By Carl Delfeld of the Chartwell ETF Advisor

Investors with the Hong Kong (EWH) and Singapore (EWS) exchange-traded funds in their saddlebags are in good shape as both have outperformed benchmarks and surprised skeptics.

In morning update Barchart reports that Japan closed +0.79%, Hong Kong closed +0.45%, and Australia closed +1.10%. However, China closed -1.46%, and India's Sensex closed -0.57%. India today reported that its exports in September were very strong at a 5-month high of +19.2% yr/yr, thus providing support to keep industrial growth near the government's 10% growth target.

Hong Kong is just a bit behind the mainland in terms of a booming market. The stock market, which hit new highs on Thursday, has risen 11 per cent in the past month for a year-to-date gain of 58 per cent. The currency, pegged to the US dollar, is bumping against it ceiling which is forcing the de facto central bank to intervene five times on Wednesday alone.

Hong Kong has always been a bit volatile and tied to real estate in particular, but the latest rally does not seem excesswive at this point. The benchmark Hang Seng Index is trading at about 22 times next year’s earnings, comfortably below the excesses of the tech frenzy of 2000. The stock market itself is a far different beast from those days. Now, Chinese companies make up over half the market capitalisation

The iShares MSCI Singapore ETF (EWS) has also been at the sweetspot of Asian growth. It is up 40% year-to-date and is rapidly becoming a gateway for many investors interested in capturing China-led growth through Swiss. quality companies. The ETF basket has some of Singapore's largest blue-chip companies. Seventy percent is weighted within the 10 largest holdings, which are banking and financial.

Both of these ETFs have been core holdings of Chartwell ETF's Asian Opportunity portfolio, find out what other countries made the grade by joining the Chartwell ETF Advisor.

Asian Markets and ETFs Maintain Momentum

By Carl Delfeld of the Chartwell ETF Advisor

Asian markets and the exchange-traded funds that track them opened the week on a positive note. Asian stocks today closed higher with the Nikkei index +1.17%, Hong Kong +3.89%, Australia +1.37%, and China's CSI 300 index closed +2.10%.

Here are the year-to-date numbers for key markets form Bloomberg and some of the ETFs that follow them. In some cases there are more than one option and the Chartwell ETF Advisor sometimes prefers the closed-ended fund alternatives.

China MSCI China, up 72.53%
Hong Kong Hang Seng Index,(EWH) up 39.57%
India Bombay Stock Exchange 100, up 44.38%
Indonesia Jakarta, up 32.12%
Japan TOPIX, (ITF), up 0.77%
Japan MSCI Japan, up 2.05%
Korea KOSPI, (EWY), up 38.28%
Malaysia Kuala Lumpur, (EWM), up 30.38%
Philippines PSE, up 32.65%
Singapore Straits Times, (EWS) up 32.10%
Taiwan TWSE, (EWT), up 24.12%
Thailand SET, up 35.97%

Will Asian markets continue to move ahead or will they run out of steam? Join Chartwell ETF and gather some financial intelligence to help you manage your global portfolio.

Time to Cut Taiwan Knot

By Carl Delfeld of the Chartwell ETF Advisor and Council on Asian Relations

It is time for Taiwan, China and America to stop kicking the can down the road a few feet each day. Let’s kick the can way down the road by agreeing to a twenty year period of guaranteed autonomy for Taiwan thereby deferring and defusing the combustible independence issue.

There is little doubt that for the leadership of the Chinese Communist Party, Taiwan is a bone in their throat - a constant irritant – and most likely an obsession for some hard-line factions determined to bring Taiwan back into the fold of the motherland. At a September 6th meeting, Chinese President Hu Jintao told President George W. Bush that the next two years will be a time of "high danger" for Taiwan because of the independence referendum issue, and that Taipei should receive "stronger warnings" from America.

Mr. Hu was referring to Taiwanese President Chen Shui-bian's plans to conduct a referendum in March on seeking U.N. membership for Taiwan. This could trigger an emotional response but despite its fury at this latest development, Beijing is very reluctant to take military action against Taiwan for five reasons.

First, any military conflict with Taiwan would surely cancel the Beijing’s showcase 2008 Olympics. This would be a devastating setback for China’s leadership and people

Second, Beijing’s approach of working quietly to support more friendly political factions within Taiwan seems to be working. In addition, Taiwanese President Chen Shui-bian’s term will end in 2008 and Beijing is betting on a less strident and independent successor.

Third, although China is rapidly modernizing its military forces, U.S. treaty obligations to Taiwan in the event of an invasion cannot be discounted. In addition, President Chen, citing China’s expanded missile program in his annual New Year’s Day address, called for the legislature to approve plans to purchase more weapons from the U.S. to offset the buildup. The Pentagon on September 12th announced plans to sell $2.23 billion worth of "surplus" submarine hunting aircraft and air defense missiles to Taiwan. The deterrent remains strong if the U.S. stands firm and sends a clear message.

Fourth, a 2005 joint statement by the Japanese and U.S. governments that both countries had a “common strategic objective” to “encourage the peaceful resolution of issues concerning the Taiwan Strait through dialogue,” raises the possibility of Japanese intervention making the military option even more risky and improbable.

Lastly, any military action would derail China’s double digit economic growth not to mention the economic integration of Taiwan into China which is moving ahead at a breathtaking rate. Cross-Straits trade has doubled since 2000 to reach $80 billion in 2006, about 1 million Taiwanese have re-located to work in China, and Taiwanese companies now account for about 65% of hardware output from the mainland.

My view is that while calls for independence are not practical near term, the desire for a high degree of autonomy from China by Taiwanese citizens is still very strong. There may be one greater China but there are three systems – China, Hong Kong and Taiwan. A period of Taiwanese autonomy will allow its citizens to observe if China’s system evolves into a more open, transparent system with rule of law and democratic institutions. This cooling off period would help China, Taiwan and America defuse rising tensions that could lead to open conflict if conventional thinking continues to dominate the debate.

In addition, right now politics rather than economics is unfortunately the prime concern for most investors considering investing in Taiwan. For the next couple of years, both could lead to a window of opportunity for investors with nerve and foresight. The same goes for American diplomats if they shift the focus from Taiwanese independence to autonomy.

Taiwan with a population of 23 million and an area of 14,000 square miles (half the size of Ireland) is a remarkable success story. However, but Taiwanese companies will need to constantly innovate, make Taiwan a major R&D center and build strong consumer brands to avoid the it’s economy from being swallowed by the mainland.

If you can get over the political risk, Taiwan’s stock market, which is up 17% so far this year, represents good value though you should expect some volatility. Take a look at the iShares Taiwan (EWT) exchange- traded fund. It has a 23% exposure to the semiconductor industry and Taiwan Semiconductor accounts for 14% of its holdings but it includes significant exposure to technology hardware, materials and banks.

For global investors, an autonomous Taiwan could be the purest China play of all. Learn more about the best way to play Chinese economic growth by joining the Chartwell ETF Advisor.

China's Stock Market and ETFs Surge Past Japan

Despite volatility and weakness in most markets and the exchange-traded funds that track them, China's market and ETFs such as the iShares China (FXI) and the SPDR S&P China (GXC) have surged ahead like a powerboat slicing through turbulent waves. Both ETFs are up more than 4.5% this morning in early trading.

At the close of trading on Tuesday, the 1,481 companies listed on the mainland had a market value of over $3 trillion while Hong Kong added about another $1.7 trillion.

Geoff Dyer of the Financial Times reports from Shanghai that the Japanese market capitalisation was $4,700bn at the close of trading on Tuesday while the combined value of the Chinese market was $4,720bn. The Industrial and Commercial Bank of China, which began trading in Hong Kong and Shanghai last October, is now the biggest bank in the world in terms of market capitalisation while China Life is the biggest life insurer.

One concern raised by the article is that a number of analysts outside mainland China have recently pointed out that up to half the earnings growth at listed Chinese companies in the first six months of the year came from the rising stock market which is due to large crossholdings between mainland companies. A market turndown would obviously hit corporate profits hard. This situation reminds me of the Japan bubble which burst in 1989. However, keep in mind that the Japan bull run and crazy valuations went for a very long time before coming to a screeching halt.

There are several classes of shares of Chinese companies listed in Hong Kong, including H-shares which are mainland registered companies and red chips which are incorporated in Hong Kong and controlled by the Chinese government.

Investors worried that the China market could be a bubble may wish to learn how Chartwell ETF advises members to hedge their bets at a low cost.

Posted by Carl Delfeld of the Chartwell ETF Advisor

Japan Holds Rates Steady, South Korea Hikes

The Bank of Japan earlier today announced that it left its overnight rate unchanged at 0.50%, which was in line with most market analyst predictions. It will also perpetuate the robust carry trade which has kept the yen weak. The market is not expecting a rate hike until later this year and not until inflation starts to rise and the risks for deflation recede.

Meanwhile, the trend toward higher global rates was underlined again earlier today when South Korea's central bank raised its benchmark rate by 25 bp to 4.75%. The market had been split regarding the this rate hike which will tighten the money supply and credit growth. Higher housing prices and a stronger than expected economy and stock market tracked by the exchange-traded fund (EWY) gave monetary officials the leeway to raise rates without fear of killing economic momentum and growth. Markets have responded favorably with EWY up 2.5% in midday trading while the iShares Japan ETF (EWJ) is flat.

My view is that Japan should have followed Korea and raised rates and that higher rates would be good for its economy and stockmarket. It would demonstrate confidence in the Japanese economy which is sorely lacking by officials, executives and consumers.

Overseas stocks markets today were mostly higher, except for the Nikkei index which closed down slightly. China's Shanghai Composite closed +0.71% and Hong Kong closed +0.89%. The European DJ Stoxx 50 index this morning is just barely higher.

Posted by Carl Delfeld of the Chartwell ETF Advisor

Malaysia and Singapore Economies and ETFs

There is more than meets the eye to the outstanding performance of the Malaysian (EWM) and Singaporean (EWS) stock markets and the exchange-traded funds wich track them. There economies and markets are integrating reducing the perceived risk of investing in Malaysia which on its own is a solid middle-income country with attractive commodity and financial sectors. Relations between the two countries has also improved with progress on the always thorny water rights issue helping things along.

Sharat Shroff, Portfolio Manager for Matthews International Capital Management comments on this trend after a recent visit to the region as follows. "My recent visit to Johor suggests that there is increasing integration between Malaysia and Singapore. Land and labor cost much less in Johor than in nearby Singapore. Even on a Saturday morning, several two wheelers were making their way over to Singapore. On a regular work day it is estimated that more than 150,000 workers commute over the Johor-Singapore causeway to earn a better living.

Driving around the up and coming townships, I could tell that rising income levels are translating into better quality homes for Johor residents. The average duplex units in mass townships are selling for about Malaysian ringgit 250,000-300,000 ($73,000-$87,000) which can be comfortably supported by an annual household income of about 150,000-200,000 ringgit ($43,000-$58,000) for a couple working in Singapore."

Posted by Carl Delfeld of the Chartwell ETF Advisor

Hong Kong ETF (EWH) at Ten Year Anniversary

As the tenth anniversary of the turnover of Hong Kong to China rule approaches on July 1st, the open and free Hong Kong market and the iShares Hong Kong exchange-traded fund that tracks it (EWH) is showcasing its traditional strengths and free market foundations.

Today the Shanghai Composite index made up of "A" shares available only to Chinese investors dove 4.5% but the rest of Asia and Europe for that matter, rather than being rattled by China uncertainty and volatility, followed the US lead and rose smartly. (Nikkei index +0.46%, Hang Seng +1.07%, Australia +1.32%). The European stock markets this morning are trading with solid gains due to yesterday's US rally. The European DJ Stoxx 50 is up +0.74% this morning.

China has created its market problem by not fully embracing free markets. Meanwhile Hong Kong, rather than being eclipsed by Shanghai, has thrived. In June 1997 mainland companies (H Shares and Red Chips)accounted for just 13 per cent of the market; today they make up almost half the market capitalization. Partly as a result of mainland issuance, Hong Kong’s market capitalisation has almost trebled to nearly US$2,000bn and its average daily trading volume is around $15 billion. The market is now trading at about 16 times projected earnings but this is nothing compared to the multiples on mainland markets.

The Hong Kong iShares ETF (EWH) has its own flavor with an emphasis on real estate and financial companies. Find out more about the best way to play the China growth story by joining the Chartwell ETF Advisor today.

By Carl Delfeld, author of "ETF Investing Around the World"

China Market Down But Asian ETFs Only Nicked

After a week where Asian markets and exchange-traded funds generally moved upward. China's Shanghai & Shenzhen 300 index made up of "A" shares today closed -4.3% after China's central bank chief Zhou Ziaochuan said that China's stock market may be overvalued and hinted at higher interest rates. But other Asian stock markets suffered much less severe declines: Nikkei -0.56%, Hang Seng -0.81%, Australia -0.83%, South Korea -0.69%. The European stock market is trading moderately lower on carry-over weakness from last Friday's US session. The European DJ Stoxx 50 is trading -0.64%.

For last week, Asian markets were generally up while the S&P 500 index lost 1.8%. The iShares China (FXI) led last week up 4.8% and 15.4% for the year. The iShares Taiwan (EWT) ETF was up 2.4% and iShares Malaysia (EWM) added 1.4% to increase its gain for the year to 32.3%. South Korea (EWY) which is up 22.4% so far this year lost 2.3% last week and Japan (EWJ) lost 1.3% for the week.

Posted by Carl Delfeld of the Chartwell ETF Advisor

New International Real Estate ETF Has Asian Tilt

The SPDR DJ Wilshire International Real Estate exchange-traded fund (RWX) has rather quickly accumulated $1 billion of assets but now has a competitor with a different geographic focus and weighting scheme. The new WisdomTree International Real Estate Fund (DRW) holds real estate companies in Europe, Japan, Hong Kong, Singapore, Australia and New Zealand.

The new WisdomTree ETF currently yields 3.26%, and charges 0.58% in annual expenses and holds 224 companies which are weighted based on regular cash dividends rather than by the traditional method of weighting companies by their market value like the SPDR international real estate ETF.

A second big difference between the two ETFs is their geographic distribution. RWX has 20% of its assets in Japan and 18.3% in the UK. The new DRW has only 9% in Japan and 8.8% in the UK but has Australia at a whopping 29.7%, Hong Kong at 20.5% and Singapore at 13.8%. All of these markets have traditionally had high dividend yielding stocks in part due to tax laws that treat dividends favorably. While DRW definitely has an Asian tilt, it has no exposure to markets in Austria, Netherlands and Canada.

Some Chartwell ETF portfolios have held RWX but DRW may be a welcome addition to Chartwell's Asian Opportunity ETF portfolio.

Weak Yen Helps Japan ETF Stay Steady in China Storm

The Japanese market and exchange-traded funds ignored the turmoil in China and churned ahead propelled in part by a weaker yen.

Japan’s Nikkei 225 index closed above 18,000 for the first time in three months. Nippon Oil Corp, the country’s biggest oil distributor, advanced 3.8 per cent to Y1,112 and Toyota Motor, the world’s biggest carmaker by unit sales, rose 0.9 per cent to Y7,620. A weaker yen continues to help the profits of the big exporters. It is interesting to note that Toyota builds more cars outside of Japan than at home.

But the weaker Japanese yen while helping Japanese exporters in the ETF basket also hurts US investors in Japanese ETFs such as (EWJ) that tracks the MSCI Japan index since they are dollar based. The iShares: MSCI Japan topped the list at midday on Wednesday for the buying on weakness formula, which tracks stocks that fell in price but had the largest inflow of money.

Australia’s dollar hit a 15-year high against the yen, as strong economic activity and soaring commodity prices added to inflationary pressures and currency climbed 0.5 per cent against the yen to Y102.02.
The New Zealand dollar, also boosted by domestic growth and interest rate expectations, rose 0.9 per cent to a 16.5-year high of Y91.61. The euro hit a record high of Y164.61 against the yen, while sterling extended its 15-year high to Y242.99.

The yen is perhaps the most undervalued currency on the planet and there are rumors that Warren Buffet may be going long the currency. If interest rates in Japan move up sharply, it will have a substantial impact on the yen as well as Japanese and southeast Asian markets.

By Carl Delfeld of the Chartwell ETF Advisor

China Plunge Has Litttle Effect on Asian Markets

Chinese stocks took another sharp hit today but the global stock markets and the exchange-traded funds that track them have again taken the sell-off in stride. According to Barchart, China's Shanghai & Shenzhen 300 index closed -7.69% but the Nikkei index today closed slightly higher by +0.08% and the Hang Seng closed +0.62%. South Korea rallied +1.44% and Singapore rallied +0.87%.

The Chinese stock market has now fallen by 16% from its May 29 peak, with the Chinese government greasing the skids with its recent hike in the stamp tax on securities trading to +0.3% from +0.1%. The stamp tax hike illustrated that the government was looking for ways to take the air out of the stock market, which also suggested that the government will not provide any support.

It appears so far that the global marketplace is nonplussed by the China market adjustment with wide consensus that it was overvalued. Ironically, it may be thet "H" share markets will be a beneficiary not a casulty of the expected drop in China "A" shares available to Chinese only.

By Carl Delfeld of the Chartwell ETF Advisor

Carry Trade Aids Australia and Mexico ETFs

The carry trade whereby investors borrow in low interest rate currencies like the Japanese yen and invest in high yielding markets is helping some exchange-traded funds like Australia (EWA) and Mexico (EWW).

The New Zealand kiwi has also benefited from the carry trade but some think that it is peaking. In a Financial Times article, Adrian Schmidt, senior foreign exchange strategist at Royal Bank of Scotland, said investors should be selective as to which high-yielding currencies to buy.

According to Mr Schmidt, robust Australian capital spending figures could support the Australian currency, while the sharp decline in New Zealand business confidence figures should concern investors. High level of interest rates in New Zealand, combined with the high currency and the heavily indebted consumer sector meant the economy was living on borrowed time, as well as borrowed money, and the sharp drop in confidence looked like an early warning sign.

“The rally in the New Zealand looks like a selling opportunity,” said Mr Schmidt. “There looks to be better value in other high yielders, with the Mexican peso standing out.” The Norwegian krone was the other main mover on the currency markets, rising 0.4 per cent to NKr6.0420 against the dollar after robust economic data.

By Carl Delfeld of the Chartwell ETF Advisor

China ETF is not a Bubble?

While the Shanghai A-share index stood at 4,375 on May 23rd representing a 258% gain since the beginning of 2006; the China exchange-traded fund (FXI) made up of primarily H shares listed on the Hong Kong Stock Exchange is up less than 5% so far this year.

The Economist points out several reasons why the Shanghai market may not be a bubble after all. First, it looks at the valuation issue. Chinese shares certainly look expensive, with an average price-earnings ratio of almost 50 (based on historic profits). But p/e ratios are hard to interpret when profits are growing so strongly. Over the past decade China's p/e ratio has averaged 37, much higher than elsewhere. According to Goldman Sachs, firms listed on the A-share market enjoyed an average 82% increase in profits in the year to the first quarter. The article also notes that since 2003, Chnia has been the laggard of the four BRIC countries even with the rapid rise over the last year.

Next, it looks at the likely impact of a sharp pullback in China's market. The total value of tradable shares—that is, excluding those held by the government—is only 25% of GDP (the market capitalisation is nearly 80%). This compares with 150% in America and over 100% in India. Some estimate that only 7% of Chinese hold any shares at all compared to 50% plus in America. But this is changing fast as more than 300,000 new brokerage accounts are opened in China every day!

What is interesting is whether you can now buy H shares in Hong Kong at lower multiples for the same company that trades for on the Shanghai or Shenzhen market. This is certainly something worth looking into.

By Carl Delfeld of the Chartwell ETF Advisor

Asian ETFs Countries Backed By Huge FX Reserves

Ten years ago the Asian market meltdown started in Thailand and spread throughout emerging Asia as well as eventually overwhelming Russia in August 1998 and Brazil in early 1999. What is different now. Well better economic policies, better currency mangement, lower levels of foreign debt and huge foreign exchange reserves. China's $1.2 trillion in reserves is equivalent to 50% of its GDP.

Martin Wolf of the FT notes that Asians decided to choose competitive exchange rates, export-led growth and huge accumulations of foreign currency reserves in order to avoid what happened a decade ago. By February of this year, the foreign currency reserves of east and south Asian countries had reached $3,280bn, up by $2,490bn since the beginning of 1999. China's reserves alone reached $1,160bn, up by $1,010bn over the same period.

Wolf points out that Asian governments did not buy into IMF advice to float their currencies but instead manged them to keep them from getting overvalued and to spur exports which of course piled up trade surpluses and reserves.

By Carl Delfeld of the Chartwell ETF Advisor

China, Japan ETFs Rebound After Weak Start

Despite measures by the People’s Bank of China last Friday such as raising interest rates and lifting bank reserve requirements, both intended to suck out liquidity cool hot share prices, the Shanghai Composite finished today up 1% after falling 3% in early morning trading.

The Central Bank also widened the trading band for the renminbi just days before Beijing ministers headed for the US for a meeting at which their management of the allegedly undervalued currency would be a focus of discussion. But the Financial Times reports that the widening of the daily trading limit to 0.5 per cent would have no direct implications for the renminbi’s level against the dollar, since the currency has rarely come close to testing the 0.3 per cent limit set in 2005. The the pace of renminbi appreciation has actually slowed in recent months, to an annual rate of about 2 per cent.

Japanese shares also headed higher on Monday, buoyed by continued yen weakness. The Nikkei 225 gained 0.9 per cent to close at 17,556.87 while the broader Topix was up 0.9 per cent at 1,710.67.

By Carl Delfeld of the Chartwell ETF Advisor

Malaysia, Thailand and Singapore Lead Asian ETFs

While the China exchange-traded fund (FXI) has rebounded nicely from its 23% drop earlier this year to be up 17% for the year, it is the Southeast Asian countries of Malaysia, Singapore and Thailand that lead in part due to their stronger currencies.

Malaysia's Kuala Lumpur Composite Index, Malaysia's main stock exchange, has gained 23% so far this year but the Malaysian ETF (EWM) is up 34% aided by the weaker dollar. Keep in mind that country specific ETFs are not hedged. The Thai SET index is up 21% this year but the Thai Baht is up 7.9% against the US dollar. The Singapore ETF (EWS) which tracks the Straits Times index is up over 20% so far this year. Many global equity managers started earlier this year spreading their bets throughout Asia rather than focusing on just the two giants, India and China. ASEAN country GDP will collectively likely exceed $1 trillion this year aided by continued strong levels of foreign direct investment and exports.

Conventional wisdom a few years back was that Chinese economic growth would suck the life out of Southeast Asian countries but. as I predicted in the New Global ETF Investor, it has energized them. They have if anything become more attractive as manufacturing centers and also have developed an increasingly robust financial and service sectors.

By Carl Delfeld of the Chartwell ETF Advisor

Indonesian President Tough Stance on Graft Should Hearten ETF Investors

While the Indonesian Fund (IF), a closed-ended fund was up 84% last year and is off to another great start this year, many investors are put off by high levels of corruption in the country. So it is encouraging that John Aglionby reports that President Susilo Bambang Yudhoyono fired five members of Indonesia's cabinet yesterday in a bid to reinvigorate his flagging war on corruption, a key part of the president's reform programme. The attorney-general and justice minister were among those dismissed.

Many would categorize Indonesia as a relatively poor country but I beg to differ. I have toured Indonesia from tip to tip and it is a country with many assets and great promise. Rich in natural resources, a talented and young population, strategically positioned to benefit from Asian growth, a size three times the that of Texas and the world’s fourth largest population. As a relatively young democracy and developing economy it lacks an important ingredient for economic growth: capital and a fiscal system to allocate it wisely.

Indonesia has taken the brave step of opening its financial services sector to majority investment by international investors; let’s also open up other areas such as infrastructure and power. The most important reform to make Indonesia more attractive to international capital is to set up a transparent and clear approval process to cut out red tape and corruption. Then reinvigorate a previously announced plan to privatize some of Indonesia’s 145 largest state-owned companies to increase their profitability and raise more government revenue. Finally, why not follow ten other countries by putting in place a flat tax to rein in bureaucracy, stymie corruption and stimulate growth and productivity.

By Carl Delfeld of the Chartwell ETF Advisor

Australian Dollar and ETF Up

The Australian exchange-traded fund (EWA) has shrugged off worries about an overheated real estate market and higher interest rates to gain 17.7% so far this year. Consumer spending and confidence remain firm as strong data from the retail sector reignited speculation of further interest rate rises coupled with budget plans to cut taxes and increase spending. The Australian dollar responded by strengthening against the US dollar. The Australian dollar climbed 0.5 per cent to $0.8285 against its US counterpart.

Peter Ganrham of the FT speculates that this trend will continue with data revealing that Australian retail sales rose a surprising 1.1 per cent in March – double the rate expected leading to pressure for more interest rate hikes and speculation that the US Fed may leave rates unchanged this week.

The Australian stock market and economy is on a historic run as it enjoys being on the sweetspot of Asian growth, commodity boom and market reforms. The confidence and momentum provided by the Australian consumer may continue to propel the market forward though at some point rate hikes could slow growth.

By Carl Delfeld of the Chartwell ETF Advisor

Japanese Stockmarket and ETFs Losing Ground to Rivals

As Japan exchange-traded funds such as (EWJ) struggle to compete with the performance of countries like Singapore (EWS) and Hong Kong (EWH), its once dominant stock market also has lost tremendous ground to its rivals.

Tokyo still has the second-largest stock market after New York and is by far the largest financial centre in Asia, with a stock market capitalisation of $4,614bn compared with $1,715bn for Hong Kong and about $384bn for Singapore. The combined value of the Shanghai and Shenzhen markets have also recently exceeded that of Hong Kong. But even as other economies have seen their capital markets surge since 1990, such growth in Japan has been anaemic. Having comprised a third of global market capitalisation in 1990, Japan’s market capitalisation is now less than one-tenth that of the world’s $49,900bn.

Michiyo Nakamoto of the Financial Times goes on to say that in a stark sign of Tokyo’s decline, the number of foreign companies listed on the Tokyo Stock Exchange has plummeted from 125 in 1990 to just 25. That is a fraction of the 446 foreign listings in New York, the 315 in London and the 150 in Singapore. New funds and innovative products are also looking at other markets that are more open to growth.

As much as I want to believe that Japan and Japanese markets have turned the corner, all of this seems to highlight a lack of confidence and risk taking so vital to growth in financial services.

By Carl Delfeld of the Chartwell ETF Advisor

Malaysian ETF Hot But Vulnerable

The Malaysian exchange-traded fund (EWM) has been on a hot streak rising 24 per cent in dollar terms on the back of an appreciating currency and a prolonged palm oil boom. Foreign investors have noticed the opportunity pouring $438m into Malaysia funds and ETFs this year, according to Citigroup report.

But the Malyasian market and ETF is dominated by a few state-owned firms centered on banks, utilities and resources leading to concentrated risk in a rather shallow market. Share prices which previously were attractive due to the Malaysian market underperming its peers for a couple of years straight now look fully priced or at a premium.

The government predicts that gross domestic product this year will reach 6 per cent, although some economists have forecast that growth might slow later this year amid soft­ening global demand for electronics, Malaysia’s biggest industry.

By Carl Delfeld of the Chartwell ETF Advisor

Gulf Investors Attracted to ETF Financial Sector Leader HSBC

HSBC is a leading bank in many financial exchange-traded funds such as the Wisdom Tree Int’l Financials ETF (DRF) where it represents 7.3% of the ETF basket. Formerly known as the Hong Kong Shanghai Banking Corporation , it is a global powerhouse and earlier this year passed Citigroup as the largest bank in the world in terms of market value.

The Financial Times reported today that a second Gulf investor appeared on HSBC’s share register in less than two weeks on Tuesday as DIC Asset Management, part of Dubai International Capital, said it had bought a “substantial” stake in the bank.

DIC, which is owned by the government of the UAE, said it had bought the stake via its $2bn Global Strategic Equities Fund. It did not disclose the size of the stake or the price paid, beyond saying that the purchase made it “one of the leading shareholders in the company”. DIC’s move comes two weeks after Maan Abdulwahed al-Sanea, a Saudi billionaire, spent about £3bn building up a 3.11 per cent stake in HSBC.

The stake buying come as HSBC's share price is under pressure as the group issued its first ever profits warning in February in the wake of the meltdown in the US subprime mortgage market.

HSBC’s expansion strategy in China has also recently been dealt a setback by the reclassification of its main domestic partner into a significant state-owned bank, a change that would protect the Chinese lender from a foreign takeover. HSBC paid $1.75bn three years ago for 19.9 per cent of the Bank of Communications – the biggest stake allowed for a foreign investor under Chinese rules.

By Carl Delfeld of the Chartwell ETF Advisor

Asian ETF Update

Asian exchange-traded funds are doing well this year with a split occuring between weak markets in northern Asia and robust ones in the southeast writes Steven Towns for Seeking Alpha. Here are the year-to-to-date numbers for the regions ETFs and some benchmarks. This data supports the Chartwell strategy of playing Chinese and Asian growth primarily through Southeast Asian ETFs. Unlike the conventional wisdom that China hurts this region, Chinese growth has actually helped them grow faster and many manufacturers and investors do not want their investments and facilities centered on just China but rather wish to spread the risks.

iShares Australia (EWA) 16.5%
iShares FTSE/Xinhua China 25 (FXI) -3.2%
iShares Hong Kong (EWH) 3.6%
iPath ETN MSCI India (INP) 7.1%
iShares Japan (EWJ) 1.3%
iShares Malaysia (EWM) 28.2%
iShares Singapore (EWS) 16.1%
iShares S. Korea (EWY) 8.4%
iShares Taiwan (EWT) 3.2%
iShares EAFE (EFA) 8.5%
iShares S&P 500 (IVV) 5.5%

By Carl Delfeld of the Chartwell ETF Advisor

Asia Ex-Japan ETFs Lead

While Japan strains to meet expectations, exchange-traded funds from the rest of Asia are shining. According to data from Emerging Portfolio Fund Research, Asia ex-Japan Funds and ETFs remain the emerging markets group with the largest net inflows in dollar terms. The $472.7 million they absorbed pushed year to date flows over the $2 billion mark, although that number remains well off the pace these funds set in 2006 when they took in $11.45 billion during the first 16 weeks of the year.

Nearly half of this week’s inflows were accounted for by Singapore Country ETF and Funds, which remain on a tear, and Australia Country ETF and Funds also accounted for a significant share. Global Equity Funds have also warmed to Australia this year, increasing their exposure to this market to the point where it has cracked the list of their top 10 country allocations.

Keep in mind that Japan still accounts for just over 40% of Asia's total market value so if you invest through a broad based Asia-Pacific ETF, your performanc ethis year will be pulled down by Japan's weak performance. Japan still suffers from a lack of confidence despite its economic recovery and first class multinationals.

By Carl Delfeld of the Chartwell ETF Advisor

Thailand, Singapore and Japan ETFs Lead Asia

The Chartwell ETF Advisor has long recommended an Asian tilt in its global exchange-traded fund portfolios. Last year, the big ETF winners were Indonesia (IF) and China (FXI) which were both up over 80%. This year the market has been more difficult but while the S&P 500 index is up 1.6%, the Singapore market is up 8.83%, Thailand is up 12.61% and Japan is up 4.38%. Indonesia and South Korea are flat while Hong Kong and Taiwan are down about 1%.

The iShares family of ETFs has 20 country-specific ETFs for most of these countries and investors may use closed-ended exchange-traded funds for those not covered by conventioanl ETFs. Two examples are the Thai Fund (TF) and the Indonesian Fund (IF). Be careful to watch the premiums some of these are trading relative to their net asset value.

By Carl Delfeld of the Chartwell ETF Advisor

China Moves on Private Property

Investors in the China exchange-traded fund or ETF (FXI) are investing in 25 large state-owned companies but in a larger sense are betting on the overall growth and potential of the Chinese economy. Privatization is critical to this continued growth and the private ownership and transfer of property is a critical iisue.

According to Asia specialist Matthews, after the Communists took over China in 1949, the government collectivized privately-held land on a large scale. In the late 1970’s, China underwent economic reforms whereby the notion of individual property rights resurfaced. One of the most important breakthroughs since then was the privatization of housing in the mid-1990's. At that time, Chinese citizens were granted the right of ownership over their domicile, but not the land underneath it. This right was a boon to the urban population, but was of limited value to rural farmers. In past years, many disputes arose between farmers and property developers over land seizures in which the farmers were given little or no compensation.

Last week, at the Tenth National People’s Congress (NPC), China passed new laws effective October 1st, 2007aimed at bolstering private property rights, particularly focused on land use rights. It should be noted that the new laws do not grant outright freehold ownership of land; nor does anyone know how well these laws will be enforced. However, the new laws do grant longer term control over land and potentially pave the way for the transfer of properties across generations, thereby unlocking a critical component of the private economy.

By Carl Delfeld of the Chartwell ETF Advisor

Asian Biotech ETF On the Way

The range of sector exchange-traded funds or ETFs continues to expand. XShares Advisors, which provides the HealthShares line of biotech ETFs, plans to market an Asian Biotech ETF in the near future according to Centient Biotech Investor.

The Asian ETF is one of six funds that XShares has currently in development. Two of the others are European biotech funds. XShares already offers a portfolio of biotech ETFs that target specific therapeutic areas. Also, First Trust is now offering the AMEX Biotechnology Index Fund (FBT), which is meant to track the AMEX Biotechnology Index. This ETF, like the upcoming Asian Biotech ETF, contains 20 biotech companies on an equal weighting basis rather than the traditional market cap weighting which concentrates investments in a few of the larger companies.

By Carl Delfeld of the Chartwell ETF Advisor

Singapore Tax Cut and ETF

The 2007 Singapore budget unveiled last week has some measures that should benefit companies in the Singapore exchange-traded fund or ETF (EWS) basket. The Economist highlights the cut in the headline rate of corporate income tax which will be reduced from 20% to 18%. This will bring Singapore to within half a percentage point of Hong Kong, where profits are taxed at a rate of 17.5%. The tax exemption for small and medium sized enterprises will also be increased but sales taxes will go up to make up some of the revenue shortfall.

While Singapore does recognize a need to address lower income needs, public spending in Singapore is still exceptionally low as a percentage of GDP—at about 15%.

Chartwell's Asian Opportunity ETF portfolio has had the Singapore as a core holding for some time seeing it as a quality China play at the heart of Asian growth.