The iShares MSCI New Zealand Capped Investable Market Index
), the lone ETF devoted exclusively to New Zealand, is trading
modestly lower Wednesday after Reserve Bank of New Zealand
Governor Graeme Wheeler confirmed the central bank has been
intervening in the foreign exchange market.
Wheeler made the comments before New Zealand's parliament
during Wednesday's Asian session, marking RBNZ's first public
admission of currency intervention in six years. ENZL, which will
celebrate its third birthday in September, has fought off one of
New Zealand's top economic hurdles, that being a strong currency,
to gain about 12 percent year-to-date.
While the $200.7 million ETF does not feature a currency
hedge, a fair chunk of the ETF's 22 holdings are focused heavily
on New Zealand's domestic economy. Not only has the economy there
been robust, but the tilt toward the domestic economy has helped
ENZL move higher even as the New Zealand dollar, also called the
kiwi, does the same. Additionally, the ETF has performed
admirably despite New Zealand's
intimate trading relationship with China
. China recently surpassed Australia as New Zealand's largest
Still, there are kiwi-related risks to ENZL going forward.
Given the performance of Japanese and U.S. equities this year, it
is clear that global investors love stocks in countries addicted
to quantitative easing. However, some investors have put money to
with Australia and New Zealand being among the top choices.
A preference for ENZL or New Zealand equities is not the risk.
The risk is the kiwi, which has been the second-best developed
market currency against the U.S. dollar since the financial
crisis, trailing only the Australian dollar. The kiwi is lower
against the greenback today than it was a month ago, but previous
currency interventions by global central banks have gone this
way: Successful right off the bat followed by waning enthusiasm
and a higher currency.
Those hoping for an interest rate cut out of RBNZ arguably
need to hope for a property bubble in New Zealand. The central
bank has voiced concern over rising housing prices, but if that
bubble bursts, the impact could be hard on ENZL, an ETF that
devotes over a third of its weight to materials and industrials
Additionally, RBNZ has previously said it wants to hold rates
at 2.5 percent this year with an eye toward an increase early
next year. Quantitative easing? Forget about it. Wheeler
considers it a source of pride that New Zealand has not
All of that is to say if RBNZ's efforts to weaken the kiwi
fail, two other
in addition to ENZL are worth a look. The WisdomTree Australia
& New Zealand Debt Fund (NYSE:
) holds bonds Australian or New Zealand dollars. More
importantly, it gives investors exposure to Australia's AAA
credit rating with an embedded income yield of just over three
percent. AUNZ has an effective duration of almost 4.1 years.
Australia's rate cut announced Tuesday combined with news of
New Zealand's intervention scheme should be dreadful news for the
PowerShares DB G10 Currency Harvest Fund (NYSE:
), but those headlines may be creating a buying opportunity in
the "carry trade ETF." DBV holds short positions in the yen (a
fine idea), the Swiss franc and the euro, which is another good
idea given that the European Central Bank is open to more rate
DBV's long positions include the Aussie and the kiwi, which
have the potential to continue moving higher as investors look
for high-yielding developed market currencies, a list that is
already small in number.
For more on ETFs, click
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