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EWT

Taiwan ETF in Focus on Rate Cut

Policy easing is definitely in the air this year. So long it prevailed in the developed economies with the Euro zone and Japan executing QE measures; but the trend is now spreading into the not-so-developed economies, putting a stamp on global growth worries. While the largest emerging nation China has been resorting to rate cuts over the last few months, the border-line developed economy of Taiwan cut its policy rate by 12.5 bps to 1.75% for the first time since the global financial turmoil in 2009.

Taiwan's economy is struggling for a while now, with weak exports casting a pall over its growth. Its economic growth shrank 1.97% in the second quarter and the inflation rate declined 0.45% in August setting the stage for monetary easing. Notably, Taiwan derives around 70% of its GDP from exports.

The reason behind weaker export was slowdown in its largest market China and a strong Taiwanese currency. An extremely weaker yen and a subdued South Korean won also made the Taiwanese dollar stronger and marred its export competitiveness. Further, demand for electronic gadgets remains tepid. Since Taiwan is globally known for manufacturing semiconductor products, a blow to its key export sector wrecked havoc on GDP growth (read: Japan's Monetary Easing Puts These Country ETFs in Focus ).

Australia and New Zealand Banking Group has reduced its forecast of Taiwan's GDP growth for 2015 and 2016 to reflect the soft export profile. Taiwan itself too lowered GDP growth rates for 2015 and 2016. On August 14, Taiwan cut growth forecasts for 2015 from 3.75% announced at the year's start to only 1.56% citing soft global demand and stiff competition from mainland China on technology export (read: ETFs to Move on Yuan Devaluation ).

Further inflation remains subdued in the island nation. Several analysts anticipate a few more rate cuts ahead to kindle growth and inflation. If their prediction comes true, investors might get some opportunity to earn out of Taiwan. Further, the rate cut pushed Taiwan's currency to a multi-year low level which can act as a tailwind to this export-driven economy.

Given this, equity ETF plays in this market would be gainful investment ideas. While Taiwan has substantial share in various emerging market and Asia-Pacific equity ETFs, FTW and EWT can come across as better bets thanks to their sole focus on Taiwan.

iShares MSCI Taiwan ETF (EWT)

This ETF looks to track the MSCI Taiwan Index. The fund invests about $3 billion of assets in 99 securities. However, with over one-fifth of the total exposure being in a single company, Taiwan Semiconductor, EWT has significant concentration risk.

Hon Hai takes up the second position in the portfolio with about 8.62% share. The fund puts about 50% of assets in its top 10 holdings. Sector wise, EWT relies heavily on information technology (56.21%), financials (18.41%) and materials (8.95%).

The fund charges an expense ratio of 62 basis points. EWT is down about 14% so far this year (as of September 25, 2015). EWT currently has Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

First Trust Taiwan AlphaDEX Fund (FTW)

This fund targets the Taiwan stock market and tracks the Nasdaq AlphaDEX Taiwan Index, which follows an AlphaDEX methodology and ranks stocks in the space by various growth and value factors, eliminating the bottom-ranked 25% of the stocks. This approach results in a basket of 40 stocks with each security holding less than 4.49% of assets (see: all the developed Asia Pacific ETFs here ).

Information technology takes the top spot at 50.55% in terms of sectors, closely followed by financials (21.753%) and consumer discretionary (11.18%). The fund has amassed just $6 million in its asset base and trades in a paltry volume of roughly 5,000 shares. Expense ratio came in at 0.80%. The fund is down over 18% and has a Zacks ETF Rank #4 (Sell).

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ISHARS-TAIWAN (EWT): ETF Research Reports

FT-TAIWAN (FTW): 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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