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Australian Employment Advances: ETFs in Focus

Australian employment increased 14,000 in June on a monthly basis. Full-time jobs surged 62,000 in June compared with 53,400 in May, the biggest two-month increase since 1988. Part-time jobs on the other hand fell 48,000 in June (read: Asia Business Optimism at 3-Year High: ETFs in Focus).


The employment data released is reflective of the strength in the labor market. The unemployment rate remained unchanged at 5.6% in June, while the participation rate increased to 65% from 64.9%.


This is expected to bode well for people expecting a rate hike by the Reserve Bank of Australia (RBA) soon. Interest rates in Australia have been at a record low, as the country battles opposing forces of rising real estate prices and low inflation.


However, prime minister Malcolm Turnbull stated that there are higher odds of a rate hike than of a rate cut, acknowledging the fact that rates are at a record low currently and that the global trend is of rate hikes. Per Guardian, he warned homebuyers to be aware of the economic environment and said, “It is time to be prudent in managing your financial affairs and make sure you do everything you can to live within your means.”


Even though there has not been an outright rate hike, per Bloomberg, the Australian dollar against a basket of other major currencies has advanced 6.5% since the beginning of June 2017. As per Paul Bloxham, chief economist for Australia at HSBC Holdings Plc, a 5% increase in this index is equivalent in terms of economic impact to a 25 basis point hike in the cash rate (read: Moody's Downgrades Australian Banks: ETFs in Focus).


The Australian economy also faces risks from China’s looming debt crisis. China is the largest market for Australian mineral exports and Australia is a preferred destination for the Chinese when it comes to higher education and tourism. Therefore, the health of the Chinese economy is expected to have a direct impact on the Australian economy’s performance (read: China's Inflation, Debt & Impact on Australia: ETFs in Focus).


Let us now discuss a few ETFs focused on providing exposure to the Australian economy (see all Asia-Pacific (Developed) ETFs here).


IShares MSCI Australia Index Fund EWA:


This fund is the most popular Australia ETF in the space, offering exposure to the most liquid equities in the Australian economy. It tracks the MSCI Australia Index.


This fund has AUM of $1.75 billion and charges a relatively moderate fee of 48 basis points a year. From a sector look, Financials, Materials and Real Estate are the top three allocations of the fund, with 42.57%, 16.52% and 8.40% exposure, respectively (as of July 18, 2017). Commonwealth Bank Of Australia, Westpac Banking Corporation Corp and Australia and New Zealand Banking group are the top three holdings of the fund, with 11.15%, 8.21% and 6.60% allocation, respectively (as of July 18, 2017). The fund has returned 10% year to date and 11.36% in the last one year (as of July 19, 2017). EWA currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.


WisdomTree Australia Dividend Fund AUSE:


This ETF is another popular fund offering exposure to the Australian economy and tracks the WisdomTree Australia Dividend Index.


This fund has AUM of $36.83 million and charges a fee of 58 basis points a year. From a sector look, Financials, Consumer Discretionary and Basic Materials are the top three allocations of the fund, with 24%, 17% and 13% exposure, respectively. National Australia Bank Ltd, Rio Tinto Ltd and Australia & New Zealand Banking Group Ltd are the top three holdings of the fund, with 3.80%, 3.71% and 3.68% allocation, respectively (as of July 19, 2017). The fund has returned 10.15% year to date and 15.20% in the last one year (as of July 19, 2017). AUSE currently has a Zacks ETF Rank #3 with a Medium risk outlook.


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