An issue facing New Zealand stocks and ENZL is valuation. While plenty of market observers have noted U.S. stocks are expensive, New Zealand is one of the most richly valued developed markets.

“New Zealand stock exchange’s positive-adjusted, one-year forward price-earnings multiple (p/e) of 17.0x seems comparatively expensive measured against that of Canada (15.8x), US (16.5x) and Australia (14.9x). Furthermore, it exceeds its historical average (15.5x) and its record low (9.8x), despite the fact it is 4.6 points below its all-time high (21.6x),” according to S&P Capital IQ.

If there is a valuation silver lining for New Zealand it is that the market is modestly undervalued against the global benchmark, the S&P Global BMI Index. Additionally, S&P Capital notes Fletcher Building, ENZL’s largest holding at 13% of the ETF’s weight, is undervalued.

Still, investors should acknowledge ENZL’s recent sensitivity to the week kiwi. Last week, RBNZ said  it “considers the level of the exchange rate is unjustified and unsustainable, and that it is susceptible to a significant downward adjustment.” RBNZ Governor Graeme Wheeler added “that past experience suggests that, when the New Zealand dollar begins declining from an unjustified and unsustainable level, the ultimate adjustment can be large.”

iShares MSCI New Zealand Capped ETF