SIA Weekly: A Look at South Korea and China Equity Markets




by SIACharts.com

For this week's edition of the SIA Equity Leaders Weekly, we are going to look at a couple country specific ETFs that have been in the forefront of the global news within the International Equity asset class. South Korea has been stuck in between a war of words between North Korea’s threat to strike American military forces on Guam if attacked and President Trump’s threat to unleash “fire and fury” on North Korea.

iShares MSCI South Korea Capped ETF (EWY)

The iShares MSCI South Korea Capped ETF (EWY) tracks the MSCI Korea 25/50 Index holding 113 stocks. South Korea is Asia’s fourth-largest economy behind China, Japan, and India. South Korea is advanced in education, technology, culture, politics, finance, and trade. This ETF has about a 22% weighting in Samsung Electronics and a thus a strong over-weighting in the technology sector.

However, EWY is down 4% over the last month and 4.6% just last week having its first reversal on a 2% Point and Figure chart of the year in 2017. This was the worst week for this ETF since February 2016 as U.S. President Trump dialed up his warning to North Korea that he would unleash “fire and fury” on Kim Jong Un’s regime apparently without consulting with South Korea. The threat of North Korea launching ballistic missiles towards Guam has left the Korean Peninsula, surrounding nations, and the U.S.A in a bout of combative rhetoric that had intensified while at the same time some nations are trying to deescalate the situation through diplomatic ways as South Korea’s president, Moon Jae-in, stated on Tuesday that “It’s only South Korea that can decide on military action on the Korean Peninsula” and “No one should be allowed to decide on military action on the Korean Peninsula without South Korean agreement.”

This tension on the Korean peninsula may lead to greater volatility for ETFs with exposure to South Korea like EWY in the future. As EWY was experiencing a great start to 2017 up 27.17% YTD and ranking as one of the top Developed Country ETFs in the ‘SIA International Equity Developed Markets Report.’ Resistance above can be found for EWY at its prior high of $72.20 and above this should it break out to the upside at $78.15. To the downside, support can be found at the first 3-box reversal level around $65.39 and also below this at around $61.62. With an strong SMAX of 9, EWY is currently showing near-term strength against all of the asset classes.

SPDR S&P China ETF (GXC)

The SPDR S&P China ETF (GXC) follows the S&P China BMI Index which is made up of 354 Chinese companies with a float-adjusted market cap of $100M. This ETF has moved to new all-time highs this month and sits in the Favored zone of the SIA International Equity Emerging Markets ETF Report while it has moved up over 36% YTD so far. Resistance is just above at $100.92 and above this at $111.42. Support to the downside is found at $91.41 and $86.14 should it reverse.

China has urged the United States and North Korea to "hit the brakes" on threatening words and work toward a peaceful resolution of their tense standoff created by Pyongyang's recent missile tests and threats to fire them toward Guam. In a sign of growing concern on the part of Pyongyang's only major ally, Chinese Foreign Minister Wang Yi said in a phone conversation with his Russian counterpart, Sergey Lavrov, that the two countries should work together to contain tensions and permit no one to "stir up an incident on their doorstep," according to a statement posted on the Chinese foreign ministry's website.

Another report came out that America now owes more money to China than any other nation as China’s holdings jumped $44 biillion to $1.15 trillion in June overtaking Japan as the U.S.’s biggest creditor. The buying and selling of foreign central banks and investors can have a big impact on the US government bond market and China’s actions can certainly have an impact as the biggest creditor.

For those looking to dig deeper to see where specific strength is coming from within the Developed or Emerging Markets, we recommend checking out the SIA International Equity Developed or Emerging Markets ETF Report to see which specific nations are providing the best relative strength opportunities, you can contact our sales and customer support at 1-877-668-1332 or at siateam@siacharts.com.

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