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What is Driving Asian ETFs Higher?

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Asian stocks and ETFs have been rallying on President Donald Trump’s indications of a tax overhaul in a few weeks. The resultant hopes of stronger U.S. economic growth on fiscal stimulation and its ripple effects on several other asset class cheered the Asian stocks lately (read: Trump Tax Talk Boosts Market: Time for Momentum ETFs?).

The greenback gained in recent trading with PowerShares DB US Dollar Bullish ETF UUP adding over 0.1% on February 10. With this, Japanese currency yen fell against the U.S. dollar with CurrencyShares Japanese Yen ETF FXY losing about 0.1% on the same day (read: Japan ETFs: Compelling Plays in 2017?).

Since Japan investing is more of a yen story, any pullback in the currency will give Japanese stocks ways to outperform. This is because Japan relies on exports considerably and a weaker currency always plays a vital role in helping Japanese companies operating abroad in repatriating more money earned in dollar terms.

In addition, Japan's economy grew at an annualized rate of 1.0% in the fourth quarter, backed by strong exports and capital expenditure.The Japanese index Nikkei, in fact, reached a one-month high. Currency-hedged Japan ETF WisdomTree Japan Hedged Equity ETF DXJ advanced over 0.8% on February 10.

Along with Trump’s plans to lower taxes in the U.S., his conformity to the "One China" policy on Taiwan, and overall assuring global economic data and geopolitics aided Asian investing. Plus, a constructive meeting between Japanese Prime Minister Shinzo Abe and Trump also favored the market momentum.

The trade relationship between the U.S. and foreign economies was thought to be worrisome initially in the Trump presidency as Trump has always been against outsourcing and issued an executive order to withdraw the Trans-Pacific Partnership that includes countries like Japan and Australia (read: Welcome Trump Era with These ETFs).

However, in the meeting, Trump did not accuse Japan of snatching American jobs and benefiting from the U.S. defense aid. Rather, he reaffirmed that "U.S. commitment to defend Japan through the full range of U.S. military capabilities, both nuclear and conventional, is unwavering," as per the joint statement.

Things are looking good in China too. Exports from China jumped 7.9% year over year to $182.81 billion in January 2017, due to solid global demand, following a 6.2% decline in the prior month and breezing past expectations of a 3.3% rise. It was the fastest clip of annual growth since March 2016.

Market Impact

Thanks to the inflow of optimistic news and data, equity investors would definitely want to benefit out of the trend. Thus, Asian ETFs tacked on gains in recent sessions. In such scenario, investors can definitely play the below-mentioned ETFs.

ETF Picks

O'Shares FTSE Asia Pacific Quality Dividend Hedged ETF

The fund looks to track the Developed Asia Pacific Qual/Vol/Yield Factor 5% Capped Hedged 100% to USD Index. The fund reflects the performance of high quality large and mid-cap equities across the Asia Pacific region that shows relatively low volatility and high dividend yields. TheZacks Rank #3 (Hold) fund charges 68 bps in fees.

SPDR S&P Emerging Asia Pacific ETF GMF

The fund tracks the S&P Asia Pacific Emerging BMI Index. China (44.59%), Taiwan (22.16%) and India (17.64%) are top three geographies of the fund. It charges 49 bps in fees and yields 2.27% annually. The fund has a Zacks Rank #3 with a Medium risk outlook.

iShares MSCI Taiwan ETF EWT

Taiwanese stocks lately surged to the highest level in more than 20 months on increased foreign investors' buying. EWT yields about 2.17% annually and charges 64 bps in fees. The fund has a Zacks Rank #3 with a Medium risk outlook.

WisdomTree Australia Dividend ETF AUSE

The fund looks to track the WisdomTree Australia Dividend Index, which measures the performance of high-yielding companies in Australia. The fund has a Zacks Rank #3 and yields about 3.07% annually.

WisdomTree Japan Hedged Quality Dividend Growth Fund JHDG

The fund looks to track an index that measures the performance of dividend-paying stocks of Japan with growth characteristics while at the same time neutralize exposure to fluctuations between the yen and the US dollar. The Zacks Rank #1 (Strong Buy) fund charges 43 bps in fees and yields about 2.02% annually.

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