If global central banks were teenagers, it would be fair to
say these entities are quite vulnerable to peer pressure. Taking
a page from a 1980s after-school special, it is not unreasonable
to say central banks in the Asia-Pacific region this week
succumbed to a line of thinking akin to "C'mon. All the cool kids
are doing it."
"It" being cutting interest rates or, in the case of the
Reserve Bank of New Zealand, intervening in the forex market. The
impact of interest rate cuts usually takes a while to be seen in
any economy, but the headlines affect stocks, bonds and
Unfortunately for some marquee Asia-Pacific ETFs, the rate
cuts or speculation thereof has done little to boost the fortunes
of these funds on a weekly basis.
iShares MSCI Australia Index Fund (NYSE:
) The Reserve Bank of Australia announced a 25-basis point
interest rate reduction earlier this week, which took the
country's overnight cash rate to 2.75 percent, the lowest level
in over five decades. That rate is, obviously, low by Australia's
standards, but high compared to most of the developed world.
In addition to the rate cut headline, news that George Soros
is short the Australian dollar and that Stanley Druckenmiller is
also bearish on the currency have weighed on the Aussie. That
should be good news for export-dependent Australia and EWA. Maybe
it will be over time, but EWA looks poised to finish the week
lower by 1.5 percent.
iShares MSCI South Korea Capped Index Fund (NYSE:
) The Bank of Korea surprised markets on Thursday by lowering
South Korea's seven-day repurchase rate to 2.5 percent from 2.75
percent. Unfortunately, for South Korea equity bulls and the
country's exporters, the won
needs to weaken much more against the yen
than a 25-basis point rate cut will allow for.
Basically, the Bank of Korea looks like a Pop Warner team
matching up against the Bank of Japan with BoJ playing the role
of the Baltimore Ravens. EWY has traded lower since the rate cut
news and will likely finish the week in the red.
Market Vectors Vietnam ETF (NYSE:
) On Friday, the State Bank of Vietnam announced it will pare its
refinancing rate to 7 percent from 8 percent and lower the
discount rate to 5 percent from 6 percent. The cuts are the
eighth since last year and come on the heels of an interest rate
reduction in March,
VNM is trading lower by almost 1.1 percent Friday, but the ETF
is in position finish with a weekly gain. Additionally, the rate
cuts indicate the State Bank feels comfortable with Vietnam's
inflation situation and that could prove to be a positive
catalyst for VNM in the coming months.
iShares MSCI New Zealand Capped Investable Market Index Fund
) Central bank interventions in the foreign currency market
rarely produce the desired result over the long-term, but the
Reserve Bank of New Zealand is forced to try due to the
adverse impact the strong kiwi
has had on the country's exporters.
Problem is New Zealand's interest rates are 2.5 percent, high
by the standards of the developed world, and that makes the kiwi
a prime carry-trade currency. Enthusiasm for the intervention
news waned quickly and ENZL will likely finish the week with a
Interestingly, in the two days since the RBNZ news hit the
wires, ENZL has gained about $7 million in assets. The ETF had
$200.7 million the day before the announcement and $207.9 million
at the start of trading Friday,
according to iShares data
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