China is the largest export market for Australia and iron ore accounts for about 20% of Australian exports. Iron prices are declining, a scenario that RBA has noted multiple times this year as the central bank has said other sectors of the Australian economy need to start picking up the slack from materials because the country’s mining boom is expected to end in 2013.
With a 19.2% weight to the materials sector and BHP Billiton (NYSE: BHP), the world’s largest mining company, as its largest holding, EWA is vulnerable to any retrenchment in commodities prices. Further pressuring the Aussie, EWA and the ETF’s constituents is the currency’s status as a risky currency. That leads to Australian equities being viewed as somewhat riskier than other developed markets. Since Australian stocks and the dollar are viewed as “risk on” plays, that leaves both vulnerable to a possible end of quantitative easing by the Federal Reserve and that may explain why EWA is not benefiting from FXA’s downside.
iShares MSCI Australia Index Fund
ETF Trends editorial team contributed to this report.