Chartwell Global ETF Report

While the bigwigs convened in Davos, global markets had a difficult day. The best performing ETFs yesterday were the Silver ETF (SLV) up 1.36%, the Cohen & Steers Realty ETF (ICF) up 0.82% and the Sweden ETF (EWD) up 0.66%. Leading the losing side was the Dow Jones Home Construction (ITB) down 3.4%, the China ETF (FXI) down 2.5% and the S&P Latin America 40 (ILF) down 2.45%.

Trade and investment flows between ASEAN and the rest of the Asia Pacific region, especially with both Japan and China play an important role in economic growth and the performance of Asian ETFs such as the Malaysian ETF (EWM), the South Korean ETF (EWY), the Thailand closed-ended ETF (TF) and the Japan ETF such as (EWJ).

According to news from Matthews Funds, the Association of Southeast Asian Nations (ASEAN) summit held Jan. 13th through 15th in Cebu, Philippines, participants agreed to lay out the framework for an Asia Pacific free trade zone that would include the ten ASEAN members as well as Australia, China, India, Japan, New Zealand and South Korea.

The free trade zone would encompass about half the world's population and roughly $10 trillion in gross domestic product. Intra-ASEAN trade constituted 25% of all trade conducted by ASEAN countries, while trade with Japan and China accounted for 22%. In comparison, trade with the U.S. accounted for 12.6%.

Labels: Asia, Exchange Traded Funds

Perhaps the largest risk to international investors in China and the China ETF (FXI) is not its weak financial system or its lack of due process and transparent legal system but rather its leader's eagerness to appeal to patriotic sentiments to bolster its hold on its government.

Starbucks (SBUX) has almost 11,000 retail outlets of which 3,600 are outside North America. Starbucks began in Asia with its first store in Japan in 1996 and now has 165 stores in mainland China, 221 in Hong Kong, Taiwan and Macau, 595 in Japan, 64 in Australia and 34 in Singapore.

Starbucks is a classic growth story. It added over 1,000 stores last year and plans 1,800 more in the fiscal year ending September 2006. 40 million people visit a Starbucks store each week and it has operations in 37 countries. Its global goal is to reach 30,000 outlets with half of them located overseas. China could perhaps become its second largest market after America.

Carl Delfeld has been advising members that Starbucks is an excellent China play with one caveat - Chinese nationalism. Last Friday the Financial Times reported that Starbucks may have to close its discreet Imperial Palace outlet because of angry protests that it constitutes "an affront to Chinese culture." The outlet has been located there for six years and is so low key there is not even a Starbucks sign!

The New York Times reported on the same day of "China's apparent success in destroying one of its own orbiting satellites with a ballistic missile signals that its rising military intends to contest American supremacy in space, a realm many here consider increasingly crucial to national security."

Labels: Asia, China, Exchange Traded Funds