Just 17 exchange traded funds hit all-time highs Thursday. Exclude new ETFs and the number is even smaller, but the iShares MSCI New Zealand Capped ETF (NYSEArca: ENZL) continues to be a regular member of the all-time high club.
Up 26.3% year-to-date, the oft-overlooked ENZL, the lone exchange traded fund dedicated to stocks in New Zealand, is easily one of 2016’s best-performing developed markets single-country ETFs. Much of ENZL’s strength this year can be tied to an interesting scenario: New Zealand’s currency, the New Zealand dollar or kiwi, is rising while the Reserve Bank of New Zealand (RBNZ) is lowering interest rates.
SEE MORE: New Zealand ETF Gets Central Bank Assist
RBNZ’s low interest-rate policy runs counter to its efforts to stem a potential housing bubble. In fact, RBNZ cited a housing bubble one of the reasons behind 2014’s rate hikes. Last week, RBNZ lowered New Zealand’s benchmark borrowing cost by 25 basis points to a record low of 2%.
“The Reserve Bank of New Zealand has been dovish the entire year. The reasons include China, the Eurozone, volatile markets, commodities, the local housing market, a weak dairy market and a too strong currency. It’s publicly said that New Zealand wants to boost inflation. In reality, it’s probably fighting against deflation as are many other economies,” according to Investopedia.
Another knock on New Zealand has been that the country is running a current account deficit, a scenario global investors are apt to monitor closely following prior repudiation of some emerging markets with vulnerability to external financing demands.
SEE MORE: New Zealand ETF Keeps Surging
RBNZ is implementing a dovish monetary policy on par with its Australian counterpart, the Reserve Bank of Australia (RBA).
Looking ahead, most economists anticipate a second cut before the end of the year, with the June quarter inflation figure, which comes out in August, providing further guidance on the RBA’s path. Investors looking to take advantage of Aussie weakness can consider the double-leveraged ProShares UltraShort Australian Dollar (NYSEArca: CROC).
“Country ETFs might be overbought with 25 of 30 trading above their 50 day moving averages. ENZL is also trading above its 50 day moving average. What makes ENZL unique is that it is so obscure it’s not even on that list of 30 country ETFs. The average daily trading volume for ENZL is just 75,260 over the past three months, more than double what it was in March,” according to Investopedia.
iShares MSCI New Zealand Capped ETF
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.