Although most Asian bourses such as the Shanghai Composite and South Korea’s Kospi have lagged U.S. stocks this year, Goldman Sachs sees some opportunity in the North Asian region, but investors opting to follow the bank’s advice should be selective when it comes to selecting ETFs.
Goldman “estimates only one percent returns at the regional level amid macro-economic challenges, pedestrian earnings, middling valuations and poor risk-adjusted performances so far this year,” reports Leslie Shaffer for CNBC.
The bank also noted that tapering of quantitative easing by the Federal Reserve and slowing Chinese economic growth will have varying impacts on North and South Asian equity markets. “North Asian economies have greater sensitivity to U.S. growth, are less vulnerable to (quantitative easing) exit concerns, have better fiscal and domestic credit conditions, and are seeing foreign inflows as investors reduce underweight positions,” CNBC reported, citing a Goldman report.
The iShares MSCI South Korea Capped ETF (NYSEArca: EWY) qualifies as a North Asia play. Although central bankers and policymakers in South Korea, Asia’s fourth-largest economy, have previously acknowledged tapering is one of the two biggest risks (the other being the weak yen) facing their economy, Goldman is Overweight South Korea, citing the familiar theme of discounted valuations. [Tapering Tumble for South Korea ETF]