SGX: US, Asian Equity ETFs in Focus as Dollar Bulls Rule Post-Fed Hike
OREANDA-NEWS. The Federal Reserve raised interest rates for the first time in nearly a decade in a widely anticipated move on Wednesday, and signaled that the pace of subsequent hikes would be gradual.
The liftoff marks the end of what Fed Chair Janet Yellen called an “extraordinary” seven-year period of record-low rates that were designed to stimulate the US economy in the wake of “the worst financial crisis and recession since the Great Depression”.
The Federal Open Market Committee unanimously voted to set the target range for the federal funds rate at 0.25% to 0.5%, up from zero to 0.25%. Policy makers also forecast an appropriate rate of 1.375% at the end of next year, implying four quarter-point hikes in the target range in 2016, unchanged from September, based on the median number from 17 officials.
In a news conference on Wednesday, Yellen repeatedly stressed her confidence in the health of the US economy, noting that it was on “a path of sustainable improvement”.
She added that the central bank had put itself in the position to nurture the economic recovery by raising rates a little now to avoid having to increase them a lot later. That would enable the Fed to tighten policy gradually, raising rates in fits and starts to keep the economy on track.
US gross domestic product has averaged a steady but anaemic pace of 2.2% per quarter since the recovery started in June 2009.
Asian stock markets rallied on the Fed’s decision, reflecting a growing conviction among investors that the US economy is robust enough to withstand a higher cost of borrowing despite tepid domestic growth and lacklustre inflation. The MSCI Emerging Markets Index posted its largest three-day gain since October on Thursday.
Apart from enhancing the appeal of dollar-denominated assets, the Fed’s liftoff also suggests that demand from the world’s largest economy will likely gain momentum in the months ahead.
Dollar bulls cheered the Fed’s decision, with the Bloomberg Spot Dollar Index jumping the most in six weeks on Thursday. The index, which tracks the greenback against 10 major peers, gained 0.7% for the week through Friday afternoon, the most since the period through Nov. 6.
“The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”
Excerpts from Yellen’s remarks
“Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly at some point to keep the economy from overheating and inflation from significantly overshooting our objective. Such an abrupt tightening could increase the risk of pushing the economy into recession.”
“Even after today’s increase, the stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. As we indicated in our statement, the Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
Strong Dollar to Dominate 2016 Asset Allocation
Meanwhile, the appreciating greenback will likely dominate investment decisions across asset classes for 2016, the monthly survey of fund managers by Bank of America Merrill Lynch (BofAML) showed.
“The strong dollar view is writ large across all asset, regional and sector allocations. It will take a very dovish Fed and weak U.S. earnings to reverse the strong dollar view in 2016,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, was quoted in a press release detailing the survey findings.
Among equity markets in Asia Pacific ex-Japan, China, Korea and Taiwan are at the top of the buy list for asset managers, while Australia, Indonesia and Malaysia continue to be on their underweight list.
Among equity markets in Asia Pacific ex-Japan, China, Korea and Taiwan are at the top of the buy list for asset managers, while Australia, Indonesia and Malaysia continue to be on their underweight list.
Europe and Japan have become the most favoured regions, as fund managers increase their underweight positions in US stocks.
A total of 215 participants with US$620 billion of assets under management took part in the survey from 4 December to 10 December 2015.
Among the 20 most active ETFs on SGX in the month-to-date were three ETFs with Chinese equity exposure and two US-linked ETFs. Another ETF offering exposure to the broader Asia ex-Japan region was also among the most actives.
The 20 most active ETFs in the December 2015 month-to-date are detailed below and sorted by MTD turnover.
Name | Stock Code | Price (S$) | MTD Turnover 2015 (S$) | MTD Turnover 2014 (S$) | 12M Turnover (S$) |
iShares J.P. Morgan USD Asia Credit Bond Index ETF | N6M | 10.26 | 18,941,934 | 1,347,983 | 76,992,132 |
SPDR® Straits Times Index ETF | ES3 | 2.92 | 17,509,043 | 13,297,770 | 399,702,737 |
iShares MSCI India Index ETF | I98 | 6.66 | 15,441,602 | 50,749,048 | 552,912,144 |
SPDR® Gold Shares | O87 | 102.13 | 7,786,377 | 36,794,756 | 466,744,581 |
db x-trackers MSCI Indonesia Index UCITS ETF | KJ7 | 11.38 | 4,446,873 | 4,948,344 | 79,540,459 |
db x-trackers FTSE China 50 UCITS ETF (DR) | HD8 | 29.41 | 3,111,980 | 826,441 | 83,624,478 |
db x-trackers MSCI Russia Capped Index UCITS ETF | J0R | 1.68 | 2,914,817 | 999,685 | 31,335,338 |
db x-trackers FTSE Vietnam UCITS ETF | HD9 | 22.22 | 2,869,998 | 2,402,173 | 63,769,678 |
db x-trackers MSCI Brazil Index UCITS ETF (DR) | J0O | 2.44 | 2,668,186 | 144,468 | 11,316,535 |
iShares Barclays Capital USD Asia High Yield Bond Index ETF | O9P | 10.20 | 2,664,440 | 2,663,826 | 93,409,376 |
Nikko AM Singapore STI ETF | G3B | 2.98 | 2,571,832 | 1,352,648 | 61,991,386 |
db x-trackers MSCI China Index UCITS ETF (DR) | LG9 | 12.48 | 2,326,978 | 1,497,954 | 86,047,978 |
SPDRs® S&P 500® ETF | S27 | 207.99 | 1,052,381 | 285,111 | 8,560,992 |
SPDR® Dow Jones Industrial Average ETF | D07 | 177.86 | 1,011,015 | 160,992 | 14,196,011 |
db x-trackers MSCI AC Asia Ex Japan Index UCITS ETF | IH1 | 31.55 | 924,325 | 370,235 | 239,657,366 |
db x-trackers CSI 300 UCITS ETF | KT4 | 9.70 | 869,377 | 13,522,035 | 98,940,320 |
Lyxor ETF MSCI Indonesia | P2Q | 71.23 | 703,783 | 1,198 | 5,367,471 |
iShares Barclays Capital USD Asia High Yield Bond Index ETF | QL3 | 14.42 | 634,888 | 48,156 | 2,713,328 |
db x-trackers II Australia SSA Bond UCITS ETF | K6Y | 209.76 | 550,698 | 170,215 | 4,529,640 |
Lyxor ETF MSCI EM Latin America | H1O | 4.01 | 531,609 | 47,531 | 2,383,635 |
Source: SGX (data as of 17 December 2015)
Name | Stock Code | Total Return MTD % | Total return 12M % | 3 Year Total Return Annualized % | 3 Year Total Return % | 30 day Volatility % |
iShares J.P. Morgan USD Asia Credit Bond Index ETF | N6M | -0.7 | 1.9 | 2.7 | 8.0 | 7.3 |
SPDR® Straits Times Index ETF | ES3 | -0.3 | -8.9 | -0.3 | -1.5 | 12.0 |
iShares MSCI India Index ETF | I98 | -0.3 | -7.5 | 1.5 | 5.2 | 15.9 |
SPDR® Gold Shares | O87 | -0.3 | -11.3 | -14.6 | -38.1 | 12.9 |
db x-trackers MSCI Indonesia Index UCITS ETF | KJ7 | -1.4 | -18.4 | -8.9 | -24.8 | 25.3 |
db x-trackers FTSE China 50 UCITS ETF (DR) | HD8 | -2.8 | -7.7 | -0.5 | -1.6 | 18.3 |
db x-trackers MSCI Russia Capped Index UCITS ETF | J0R | -9.2 | 3.2 | -16.9 | -44.2 | 27.5 |
db x-trackers FTSE Vietnam UCITS ETF | HD9 | -1.0 | -13.3 | 2.7 | 8.7 | 15.0 |
db x-trackers MSCI Brazil Index UCITS ETF (DR) | J0O | -2.4 | -36.0 | -22.7 | -54.9 | 36.2 |
iShares Barclays Capital USD Asia High Yield Bond Index ETF | O9P | -2.5 | 3.9 | 3.4 | 10.4 | 9.4 |
Nikko AM Singapore STI ETF | G3B | 0.3 | -7.9 | -0.2 | -1.1 | 11.6 |
db x-trackers MSCI China Index UCITS ETF (DR) | LG9 | -2.2 | -4.3 | 0.8 | 2.1 | 17.7 |
SPDRs® S&P 500® ETF | S27 | -0.8 | 3.8 | 15.8 | 56.0 | 14.3 |
SPDR® Dow Jones Industrial Average ETF | D07 | -0.1 | 4.1 | N/A | N/A | 13.3 |
db x-trackers MSCI AC Asia Ex Japan Index UCITS ETF | IH1 | -2.4 | -7.9 | -1.7 | -5.1 | 13.9 |
db x-trackers CSI 300 UCITS ETF | KT4 | 3.3 | 3.2 | 9.1 | 27.8 | 27.9 |
Lyxor ETF MSCI Indonesia | P2Q | -1.9 | -18.7 | -9.3 | -25.4 | 24.3 |
iShares Barclays Capital USD Asia High Yield Bond Index ETF | QL3 | -1.8 | 11.8 | 8.2 | 26.9 | 10.2 |
db x-trackers II Australia SSA Bond UCITS ETF | K6Y | 0.0 | 2.5 | 4.4 | 14.0 | 3.8 |
Lyxor ETF MSCI EM Latin America | H1O | -2.7 | -26.7 | N/A | N/A | 24.5 |
Average | -1.5 | -6.7 | -1.5 | -2.1 | 17.1 |
Source: SGX (data as of 17 December 2015)
Asian, European Equity-Linked ETFs on SGX
The following ETFs on SGX provide exposure to key Asian and European stock markets.
1. China
§ United SSE50 China ETF
§ db x-trackers CSI 300 UCITS ETF
§ db x-trackers FTSE China 50 UCITS ETF (DR)
§ db x-trackers MSCI China Index UCITS ETF (DR)
§ Lyxor ETF China Enterprise (HSCEI)
§ Lyxor ETF Hong Kong (HSI)
2. Korea
§ db x-trackers MSCI Korea UCITS Index ETF (DR)
§ Lyxor ETF MSCI Korea
3. Taiwan
§ db x-trackers MSCI Taiwan Index UCITS ETF (DR)
§ Lyxor ETF MSCI Taiwan
4. Japan
§ db x-trackers MSCI Japan UCITS Index (DR)
§ Lyxor ETF Japan (Topix)
5. Europe
§ db x-trackers Euro STOXX 50® UCITS ETF (DR)
§ db x-trackers Stoxx® Global Select Dividend 100 UCITS ETF
§ db x-trackers MSCI Europe Index UCITS ETF (DR)
§ Lyxor ETF Eastern Europe (CECE EUR)
§ Lyxor ETF MSCI Europe
ETFs with US Equity Exposure
SGX lists nine ETFs with US equity exposure – DB X-Trackers S&P 500 UCITS ETF, DB X-Trackers S&P 500 Inverse Daily UCITS ETF, DB X-Trackers MSCI USA Index UCITS ETF, SPDR Dow Jones Industrial Average ETF, SPDR® S&P 500® ETF, ISHARES Dow Jones US Technology Sector Index Fund, ISHARES Core S&P 500 ETF, Lyxor ETF Dow Jones Industrial Average, and Lyxor ETF Nasdaq-100.
These nine ETFs have averaged total returns of 1.7% in the year-to-date and 3.8% over a 12-month period.
The nine ETFs are detailed below and sorted according to MTD total returns.
Name | Stock Code | Total Return MTD % | Total Return YTD % | Total Return 12M % | Total Return: 3 Yrs % |
db x-trackers S&P 500 Inverse Daily UCITS ETF | HD6 | 0.3 | -4.9 | -6.9 | -39.5 |
iShares Dow Jones US Technology Sector Index ETF | I21 | 0.0 | 4.4 | 4.8 | 51.2 |
SPDR® Dow Jones Industrial Average ETF | D07 | -0.1 | 1.0 | 4.1 | N/A |
Lyxor ETF Dow Jones Industrial Average | JC6 | -0.1 | 0.2 | 3.5 | N/A |
Lyxor ETF Nasdaq-100 | H1Q | -0.3 | 9.6 | 12.3 | N/A |
db x-trackers S&P 500 UCITS ETF | K6K | -0.6 | 1.6 | 4.3 | 52.6 |
db x-trackers MSCI USA Index UCITS ETF | KF8 | -0.6 | 1.0 | 4.0 | 51.3 |
SPDRs® S&P 500® ETF | S27 | -0.8 | 1.0 | 3.8 | 56.0 |
iShares Core S&P 500 ETF | I17 | -1.7 | 1.8 | 4.5 | 53.2 |
Average | -0.4 | 1.7 | 3.8 | 37.5 |
Source: SGX (data as of 17 December 2015)
ETFs are investment funds listed and traded intraday on a stock exchange. The majority aim to track the performance of an index and provide access to a wide variety of markets and asset classes, including local stocks, international securities, bonds, commodities or money markets.
Each ETF gives investors access to the performance of the asset that comprises the underlying index. Investing in the ETF is also less costly if one was to build a similar portfolio by buying the individual stocks. It also provides exposure to international markets and asset classes that may be inaccessible to individual investors.
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