EWA: Growth Outlook Not Bright In Australia

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Matteo Colombo/DigitalVision via Getty Images Investment Thesis iShares MSCI Australia ETF (NYSEARCA:EWA) owns a portfolio of about 60 Australian stocks. The fund basically tracks the MSCI Australia ...

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The fund basically tracks the MSCI Australia ...</p>\n\n<a href=\"https://seekingalpha.com/article/4717473-ewa-etf-growth-outlook-not-bright-in-australia\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4550","symbol_name":"红杉资本持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4717473-ewa-etf-growth-outlook-not-bright-in-australia","article_id":"2462745120","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1765961012/image_1765961012.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2462745120","pubTimestamp":1724806371,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Matteo Colombo/DigitalVision via Getty Images Investment Thesis iShares MSCI Australia ETF (NYSEARCA:EWA) owns a portfolio of about 60 Australian stocks. 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The fund basically tracks the MSCI Australia index. The fund's expense ratio of 0.5% is expensive relative to other ETFs that focuses on Australian market. For example, Franklin FTSE Australia ETF (FLAU) only has an expense ratio of 0.07%. EWA had lackluster performance in the past few years. Earnings growth also does not appear to be very strong. Given its rich valuation relative to its historical valuation, we think investors may want to wait on the sidelines. YCharts Fund Analysis Lackluster performance in the past 3 years Let us first review how EWA has performed in the past few years. The fund has reached its cyclical high in mid-2021 and declined until it bottomed-out in October 2022. Its fund price has since steadily walked out of the bottom. However, unlike the S&P 500 index that has surpassed its previous high, EWA's fund price has yet to reach the cyclical high reached in mid-2021. Its return in the past 3 years was lackluster, delivering a price return of 0%. Even when including dividends, its total return was only 15.7%. This was much lower than the S&P 500 index's price return of 25.7% and total return of 32.1% in the past 3 years. YCharts Low exposure to technology sector but higher exposure to materials sector Let us now look at EWA's sector allocation. The fund's largest sector by weighting is the financials sector, which represents about 36.9% of the total portfolio. This is followed by materials sector of 19.0%. In contrast, materials sector only represents about 2.2% of the S&P 500 index. EWA's higher exposure to materials sector is not surprising, as resources export represent about 62.5% of Australia's total exports. iShares EWA's relatively higher exposure to materials sector is likely going to face headwinds at least in the near-term. This is because a large chunk of Australia's natural resources exports to China. In fact, China is Australia's largest market by export and represents about 32.4% of Australia's export according to Reserve Bank of Australia. As many may know, China's economy has been quite weak in the past few years due to poor demand and housing bubble. Therefore, the country's demand for natural resources is pretty weak now. It is likely that Australia's materials sector will be heavily impacted and may continue to remain weak in the near term. Besides materials sectors, EWA has a low exposure to fast-growing sectors such as information technology sector. As can be seen from the table above, information technology sector only represents about 2.1% of EWA's total portfolio. In contrast, this sector represents about 31.5% of the S&P 500 index. That is nearly one-third of the index. Low-single digit earnings growth outlook The consequence of EWA's higher exposure to materials sector and lower exposure to information technology sector has resulted in lower earnings growth forecasts. Below is a chart that shows the consensus earnings growth forecasts for MSCI Australia index. Since EWA tracks this index, it gives us a good clue of the earnings growth outlook for stocks in EWA's portfolio. As can be seen from the chart below, consensus earnings growth for stocks in EWA's portfolio is expected to decline by 7.1% this year. The forecast for 2025 and 2026 are expected to be better but still in the low-single digits, delivering positive growth of only 2.2% and 4.0% respectively. Yardeni Research From a macroeconomic perspective, as can be seen from the chart below, Australia's manufacturing PMI is now 48.7, and its services PMI is 52.2. For reader's information, PMI is a forward leading indicator of the economy. A reading above 50 usually means that the economy will likely expand in the next few months to come. In contrast, a reading below 50 means that the economy will likely contract. As can be seen in the chart below, back in the first half of 2021, Australia's services and manufacturing PMI were well above 55. Therefore, Australia's economy is still trying to find its footing at this moment. MacroMicro Valuation not cheap Let us now look at EWA's valuation. The fund currently trades at a forward P/E ratio of 17.5x. As can be seen from the chart below, EWA's valuation multiple has typically trade in the range of 10x and 18x. The median valuation is around 14~15x. Therefore, its current forward P/E ratio of 17.5x is towards the high end of the valuation range. Therefore, we think EWA is not cheap but expensive. Yardeni Research Beware of currency risk Investors of EWA need to be aware of foreign exchange risks as stocks in EWA's portfolio trades in Australia dollar. As can be seen from the chart below, the exchange rate between Australian dollar and U.S. dollar can fluctuate quite a bit. In fact, since 2011, Australian dollar has depreciated in value by over 39%. This can impact EWA's fund price directly. YCharts Investor Takeaway  Since EWA's earnings growth outlook is expected to be in the low single-digits in the next few years, we are unable to grant it a buy rating. Investors may want to wait on the sidelines.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2462745120"}