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Taiwan ETFs – iShares MSCI Taiwan ETF (EWT - Free Report) and First Trust Taiwan AlphaDEX Fund – gained almost 2.4% each ahead of the much anticipated easing by the country’s central bank scheduled to be held on June 30.
As per a survey by Bloomberg, it is widely expected that the central bank would cut the benchmark interest rate for the fourth consecutive quarter owing to fresh uncertainty regarding exports brought on by U.K.’s vote to exit the European Union and sluggish global growth outlook (read: Taiwan ETF in Focus on Rate Cut).
As per analysts polled by Reuters, the discount rate is expected to be lowered by 0.125 percentage point to 1.375%, marking a six-year low.
Impact of Brexit
Taiwan’s export has been declining for quite some time now and shipments have contracted year on year every month since February 2015. This is concerning as overseas demand accounts for about 67% of Taiwan’s gross domestic product. In fact, in May 2016, the government slashed the gross domestic product growth forecast for 2016 from 1.47% to 1.06%.
In this scenario, the negative impact of Brexit and its ripple effect on the global economy are expected to have a snowball effect on Taiwan’s economy. Bank of America Merrill Lynch has warned that it could “result in capital outflows from the financial markets, in turn harming investment demand and business sentiment” (read: UK Votes for Brexit: ETFs Winners & Losers).
Meanwhile, Taiwan’s central bank has also issued a statement that it expects “limited fallout” but exports could be hurt in the long run depending on the impact of Brexit on EU’s economy (read: Brexit Shocker Forces These European ETFs Over 10% Lower).
Given this, equity ETF plays in this market would be in focus. While Taiwan has substantial representation in various emerging market and Asia-Pacific equity ETFs, FTW and EWT should particularly be on investors’ radar, thanks to their sole focus on Taiwan.
EWT
This ETF looks to track the MSCI Taiwan Index. The fund invests about $2.3 billion of assets in 93 securities. However, with over one-fifth of the total exposure being in a single company, Taiwan Semiconductor, EWT has significant concentration risk. The fund trades in impressive volume of almost 9 million shares on an average.
Hon Hai takes up the second position in the portfolio with about 8.42% share. The fund puts about 50% of assets in its top 10 holdings. Sector-wise, EWT relies heavily on information technology (57.5%), financials (16.1%) and materials (9.4%).
The fund charges an expense ratio of 63 basis points. EWT is up about 7.2% so far this year (as of June 28, 2016). EWT currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
FTW
This fund targets the Taiwan stock market and tracks the Nasdaq AlphaDEX Taiwan Index. The fund has a basket of 40 stocks with each security holding less than 4.9% of assets (see all Asia-Pacific Developed ETFs here).
Information technology takes the top spot at 49.4% in terms of sectors, closely followed by materials (15%) and financials (11.1%). The fund has amassed just $4.4million in its asset base and trades in a paltry volume of roughly 1,500 shares. Expense ratio came in at 0.80%. The fund is up over 3% and has a Zacks ETF Rank #3 with a Medium risk outlook.
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Why Taiwan ETFs are Surging Despite Brexit?
Taiwan ETFs – iShares MSCI Taiwan ETF (EWT - Free Report) and First Trust Taiwan AlphaDEX Fund – gained almost 2.4% each ahead of the much anticipated easing by the country’s central bank scheduled to be held on June 30.
As per a survey by Bloomberg, it is widely expected that the central bank would cut the benchmark interest rate for the fourth consecutive quarter owing to fresh uncertainty regarding exports brought on by U.K.’s vote to exit the European Union and sluggish global growth outlook (read: Taiwan ETF in Focus on Rate Cut).
As per analysts polled by Reuters, the discount rate is expected to be lowered by 0.125 percentage point to 1.375%, marking a six-year low.
Impact of Brexit
Taiwan’s export has been declining for quite some time now and shipments have contracted year on year every month since February 2015. This is concerning as overseas demand accounts for about 67% of Taiwan’s gross domestic product. In fact, in May 2016, the government slashed the gross domestic product growth forecast for 2016 from 1.47% to 1.06%.
In this scenario, the negative impact of Brexit and its ripple effect on the global economy are expected to have a snowball effect on Taiwan’s economy. Bank of America Merrill Lynch has warned that it could “result in capital outflows from the financial markets, in turn harming investment demand and business sentiment” (read: UK Votes for Brexit: ETFs Winners & Losers).
Meanwhile, Taiwan’s central bank has also issued a statement that it expects “limited fallout” but exports could be hurt in the long run depending on the impact of Brexit on EU’s economy (read: Brexit Shocker Forces These European ETFs Over 10% Lower).
Given this, equity ETF plays in this market would be in focus. While Taiwan has substantial representation in various emerging market and Asia-Pacific equity ETFs, FTW and EWT should particularly be on investors’ radar, thanks to their sole focus on Taiwan.
EWT
This ETF looks to track the MSCI Taiwan Index. The fund invests about $2.3 billion of assets in 93 securities. However, with over one-fifth of the total exposure being in a single company, Taiwan Semiconductor, EWT has significant concentration risk. The fund trades in impressive volume of almost 9 million shares on an average.
Hon Hai takes up the second position in the portfolio with about 8.42% share. The fund puts about 50% of assets in its top 10 holdings. Sector-wise, EWT relies heavily on information technology (57.5%), financials (16.1%) and materials (9.4%).
The fund charges an expense ratio of 63 basis points. EWT is up about 7.2% so far this year (as of June 28, 2016). EWT currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
FTW
This fund targets the Taiwan stock market and tracks the Nasdaq AlphaDEX Taiwan Index. The fund has a basket of 40 stocks with each security holding less than 4.9% of assets (see all Asia-Pacific Developed ETFs here).
Information technology takes the top spot at 49.4% in terms of sectors, closely followed by materials (15%) and financials (11.1%). The fund has amassed just $4.4million in its asset base and trades in a paltry volume of roughly 1,500 shares. Expense ratio came in at 0.80%. The fund is up over 3% and has a Zacks ETF Rank #3 with a Medium risk outlook.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>