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3 Asia ETFs Down over 15% in Q3, Time to Buy Now?

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China has been at the tip of volatility throughout the third quarter of this year for one reason or the other. A surprise 2% devaluation in its currency yuan (apparently to maintain export competitiveness) and a persistently low manufacturing data bulldozed the global stocks in August (read: Guide to China Yuan ETF Investing ).

Even repeated attempts and intervention by the Chinese policy makers in its economy and stock markets did not help and the bloodbath in global risky assets continued. The Asian stocks experienced a three-year low monthly performance in August and are still bearing the brunt of the China-led global growth worries.

In any case, the Asian region is buckling under pressure for quite some time now thanks to bleeding capital. Apart from slowing growth, the region faces threats from looming Fed tightening and its ominous impact on the Asian currencies. A lift-off would add to the strength of the greenback which in turn would devalue a set of Asian currencies. Moreover, a few Asia-Pacific economies are commodity-rich and tend to underperform massively in a period of like this, when commodities are slouching.

The Asian Development Bank (ADB) recently lowered its growth forecast for Asia to 5.8% for 2015 and 6% for 2016 from 6.3% expected earlier for each year. The downward revisions were based on economic meltdown in China, "slower-than-expected pace of enacting key reforms" in India and the resultant slowdown in Asia's third largest economy, and weak demand from developed nations.

Per ADB, Thailand is still facing hard times, while infrastructure investment has been lagging the agenda in Indonesia and the Philippines. The bank has cut its forecast for the Southeast Asian region from 4.9% to 4.4% for 2015 though growth is expected to return in 2016.

All these downbeat happenings explain the rout in the Asian shares in Q3. Below we highlight three Asia/Asia-Pacific ETFs which are down over 15% in Q3, almost entered the oversold territory, have relatively intriguing fundamentals and could thus turn around in the days to come should the Chinese issues stabilize and events at Fed don't shoot up pointless volatility.

SPDR S&P Emerging Asia Pacific ETF (GMF) - Down 18.6%

Like several analysts , even we believe that emerging Asian region could be an appealing bet right now. A stable current account balance and steadier currencies than several other emerging nations (across the globe) position these strongly to fight the impending Fed rate hike. Plus many of these nations are net oil importers and are thus enjoying big-time benefits from the ongoing oil price rout.

This ETF follows the S&P Asia Pacific Emerging BMI Index and offers exposure to the emerging economies of the region. It holds a large basket of 771 stocks, which are well spread out across components with none holding more than 3.71%. It is a large cap centric fund, with the top two sectors - financials and information technology - collectively accounting for more than half of the portfolio (see all Asia-Pacific Emerging ETFs here).

From a country look, the Chinese firms dominate the portfolio at 43.5%, followed by Taiwan (20.7%) and India (18.4%). Other countries such as Malaysia, Thailand, Indonesia and the Philippines get less than 5% exposure each. The product has amassed $427.6 million in its asset base. It charges 49 bps in annual fees. The fund has a Zacks ETF Rank #3 (Hold) and trades at a P/E (ttm) of 12 times.

iShares Asia 50 ETF (AIA) - Down 17.6%

In terms of country exposure, China accounts for largest 43% share in this ETF, followed by South Korea (20.1%) and Taiwan (17.4%). Though China is the root cause of the global turmoil now, investors should note that other two holding nations are presently pursuing an easy money policy (read: Taiwan ETF in Focus on Rate Cut ).

This fund provides broad exposure to the 51 largest Asian companies by tracking the S&P Asia 50 Index. Financials and information technology take the top two spots with 40.4% and 30% share, respectively, with the other sectors make up for a single-digit allocation each in the basket. The fund has AUM of $342.4 million. It charges 50 bps in fees per year. The fund has a Zacks ETF Rank #3 and trades at a P/E (ttm) of 10 times.

iShares MSCI All Country Asia ex Japan ETF (AAXJ) - Down 17.2%

This Zacks Rank #3 product offers investors exposure to both emerging and developed Asian countries excluding Japan. This is easily done by tracking the MSCI AC Asia ex Japan Index. AAXJ is rich in assets and is worth $2.6 billion. Expense ratio comes in at 0.68%.

Holding 616 securities, the fund is widely spread out across a number of securities with none holding more than 3.68% share. Here again, financials and information technology dominate the portfolio from a sector look. With respect to the country profile, China occupies the top position with less than one-third share while South Korea, Taiwan and India round off the top four spots with double-digit exposure each. The fund trades at a P/E (ttm) of 12 times.

Bottom Line

However, we would like to note that investors need to have a strong stomach for risks while considering these emerging market plays at the current level. Agreed, these are cheap but volatility levels refuse to recede. All funds have sizable exposure in China which can surprise or shock the global economy any moment.

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SPDR-SP EM ASIA (GMF): ETF Research Reports

ISHARS-ASIA 50 (AIA): ETF Research Reports

ISHARS-MS AS-JP (AAXJ): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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