Australia ETFs In Focus On Likely Snap Elections

While the global economy is on a recovery path with solid improvements across most countries, the development in Australia might block the mending road in the coming months. This is especially true given signs of political issues in the country with the prime minister Malcolm Turnbull threatening to snap elections.

Turnbull has been trying to pass labor reform bills aimed at curbing union corruption in the building and construction industry, but was rejected several times by the Senate. Now, the prime minister has recalled parliament from a break for a special session on April 18 to vote on these ongoing controversial bills. The bills would re-establish the Australian Building and Construction Commission, and establish the Registered Organizations Commission that is vital for the country’s economic growth.

If the bills are still blocked, he will dissolve both the houses of parliament (Senate and the House of Representatives) and call for early election on July 2. The move would mark the first Australian double dissolutions since 1987 throwing all the 150 lower house seats and 76 Senate seats open for vote.

The news of double dissolution election came at the time when the latest Newspoll showed that Malcolm Turnbull’s approval rating as prime minister has slipped to the negative territory for the first time, though he remains by far the most preferred prime minister to manage the economy and deliver a tax reform.

ETFs in Focus

Given heightened political uncertainty over the snap elections, investors may want to take a closer look at the ETFs targeting this nation.

iShares MSCI Australia ETF (EWA - ETF report)

This fund is the most popular and liquid ETF tracking the Australian equity market with AUM of $1.4 billion and average daily volume of more than 3 million shares. It tracks the MSCI Australia Index and holds 73 stocks in its basket with double-digit allocations to the top two firms. Other firms hold less than 6.6% share in the basket. From a sector look, financials dominates the fund’s return at 53.1% followed by materials (12.8%). It charges 47 bps in annual fees and has gained 4.6% so far in the year. It has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.
iShares Currency Hedged MSCI Australia ETF (HAUD - ETF report)
This ETF targets the Australian equity market without the currency risk. It follows the MSCI Australia 100% Hedged to USD Index and is basically a holding of EWA with currency hedged tacked on. The fund has accumulated $9.7 million in its asset base since its inception in June 2015 and charges 51 bps in annual fees. Volume is paltry as it exchanges less than 7,000 shares on average daily basis. It has lost 1.8% so far this year.

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Disclosure: None.

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