Although it enjoyed a hot streak earlier this year, the exchange traded fund (ETF) iShares MSCI Australia Index (EWA) seems to be cooling down. While it’s still up 16.4% year-to-date, it’s 11% off its high.

We previously mentioned a warning that 40% of EWA is invested in financials. So it’s no surprise that EWA is down currently with all the subprime and credit problems in the markets lately. Another possible cause for EWA’s decline is the Reserve Bank of Australia’s decision to lift its interest rate to an 11-year high of 6.5%, according to Carl Delfeld for ETF XRAY. Australians are especially sensitive to interest rate hikes because they tend to have high levels of personal debt. Australians have home ownership levels at close to 70%, which is high when compared to the rest of the world. In addition, the country’s corporate profits have lagged stock performance. However, Australia is rich in metals, oil and natural gas. Will its strong supply of resources be enough to pull EWA back up?


The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.