Reversal of Fortune: Asia ETFs Lead the Way After 2-Year Hiatus

NEW YORK (ETF Expert) -- Nearly two months ago, Ben Bernanke announced an open-ended promise for the Federal Reserve to purchase $40 billion in mortgage-backed bonds every month. Prior to the Sept. 13 announcement, investors expected another round of electronic money printing, yet the size and scope of the plan exceeded everyone's expectations. U.S. stocks surged to multi-year highs through the Sept. 14 close.

Shortly thereafter, however, U.S. stock assets began to weaken. Not only were corporate revenue reports decidedly weak in October, but many chose to exit riskier assets prior to the presidential election and the subsequent "fiscal cliff" debate.

Realistic fears that the same cast of characters may stumble in their efforts to reach an agreement has seen many investors selling first and asking questions later. The S&P 500 has already forfeited 6.3% over the last eight weeks.

That said, not every stock ETF has lost ground since Sept. 4. Asian ETFs have actually held steady.

Keep in mind, China's inflation has slowed, its manufacturing has picked up and its leaders have plenty of conventional fiscal and monetary policy tools at their disposal. In other words, the circumstances are enormously beneficial to regional players that support the world's second-largest economy.

Not sure that the worst is over in Asia? Take a look at the recent returns throughout the Asia-Pacific region:

Here's how these Asian ETFs performed over the eight weeks from Sept. 17 to Nov. 9:

iShares MSCI Philippines ( EPHE), 3.6%

iShares MSCI Indonesia ( EIDO), 1.7%

iShares MSCI Australia ( EWA), 0.0%

iShares MSCI New Zealand ( ENZL), -0.1%

iShares MSCI All Asia excl Japan ( AAXJ), -0.6%

iShares MSCI Hong Kong ( EWH), -1.7%

iShares MSCI Malaysia ( EWM), -1.8%

iShares MSCI South Korea ( EWY), -5.3%

By comparison, the S&P 500 SPDR Trust ( SPY) is off 5.7%, the S&P 500 is down 6.3% and the PowerShares QQQ NASDAQ 100 ( QQQ) is down 9.4%.

In commentary from previous months, I talked about changes in the economic landscape as well as the relative strength that Asian Neighbor ETFs were demonstrating. For example, in "Asia Pacific ETFs Become Relative Strength Standouts," I chronicled the progress of the region's ETFs over a 10-week period from mid-July. Funds like ENZL had already moved from a relative strength factor score in the 50th percentile to the 90th percentile.

Obviously, if U.S. political leaders fail miserably on minimizing the extent of simultaneous tax hikes and spending cuts, one shouldn't expect Asian ETFs to escape unharmed. On the other hand, if you've ignored emerging markets for years due to uncertainty about a hard economic landing in China, it's time to take another look.

Based on a wide variety of ETF selection criteria, I maintain a healthy allocation to AAXJ as well as an individual country "fave" EWM. The 3.6% annualized dividend yield is two times the 10-year U.S. Treasury. Meanwhile, the country maintains full employment, manageable inflation and steady GDP expansion.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

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