This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

China's Economic Contraction Hurts Australia

Stocks in this article: EWA

NEW YORK ( ETF Digest) -- Just a little over a week ago there were large outflows detected for the iShares MSCI Australia Index Fund (EWA).

The fund experienced a 2.2% decrease (week over week) in shares outstanding, from 118.6 million to its current 116 million.

It may be fruitless to endlessly speculate why this took place, but there are some important economic indicators at work that may be worth a closer look.

Consider these sobering statistics. The Australian Bureau of Statistics recently announced the growth rate for the final quarter of 2011: 0.4%, half of what was expected.

Australian unemployment also edged up to 5.2% in February.

Building approvals (both housing and nonhousing) registered an annual decline of 17.3% since last January, with a decline of 0.5% from December 2011 to January 2012.

Australia's balance of trade fell into negative territory from December 2011 to January 2012, registering an 8% deficit. Exports to China, Australia's largest and most important trading partner, fell a precipitous 23%.

Australian Balance of Trade

None of this is great news for EWA, which is especially concentrated in financials, (44.62% allocation) and materials (25.64% allocation).

The fund seeks to "provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the Australian market, as represented by the MSCI Australia Index."

Its top three holdings account for 29.86% of the fund, and are: BHP Billiton Ltd (BHP) (13.16%), Commonwealth Bank of Australia (9.1%) and Wespac Banking Corp (7.6%). It has an expense ratio of 0.52%.

As a nation where commodities (iron ore, grains, and even gold) serve as the backbone of the economy, Australia is highly dependent on commodity prices.

The Australian dollar has rallied strongly against the greenback and is now trading at more than par.

All things being equal, this makes Australia's exports more expensive, so it's possible that the Australian central bank will intervene to reign in the currency.

This too could be problematic, as internal inflation runs hot and cold. If the central bank raises interest rates to restrain inflation, the Australian dollar will almost certainly rise, further raising the prices of Australian exports and damaging Australia's balance of trade.

In spite of all this relatively bad news, EWA hasn't been trading all that poorly. It fell just slightly on those releases by the Australian Bureau of Statistics, but you will notice that volume spike right around March 14, denoting that previously mentioned large outflow of funds.

Over the last year, EWA has gradually declined from its high of $28.36, and is currently trading at $23.49.

Join the banter with us on Facebook and Twitter.

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,300.10 +108.73 0.63%
S&P 500 2,011.22 +9.06 0.45%
NASDAQ 4,654.7020 +16.7080 0.36%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs