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Korean ETF Offers Investors Chance For Growth

EWY is weighted heavily towards the information technology and consumer discretionary sectors. Korea is a technology-based economy composing of companies who are industry leaders in their respective fields and have strong earnings. EWY provides targeted access to Korean stocks and is a good measure of the economic strength of Korea; rating agencies are optimistic in growth prospects of Korean economy. By Harry Lee Korea is currently offering investors a solid mid-term growth opportunity at a good value through the iShares MSCI South Korea Capped ETF (NYSEARCA: EWY ). EWY is down 16% overall from its high at 62.93 in April, due to a strong U.S. Dollar, the devaluation of the Chinese yuan, and the crash in equity prices in China this past summer. Fundamentally, however, the Korean economy itself not remarkably declined in a way that justifies the 16% decline in EWY’s price since July of 2014. This has created a solid entry point for investors looking for strong growth potential over the mid term. EWY’s Sector Weights and Sector-Specific Performance EWY is heavily weighted towards the information technology and consumer discretionary sectors. Hence, when evaluating EWY, we must examine the individual performances of those individual sectors and their long-term growth prospects, rather than solely scrutinizing at the performance of the national economy as a whole. Samsung Electronics ( OTC:SSNLF ) is the largest component, at 21.99%; Hyundai Motors ( OTC:HYMPY ), Naver Corp. ( OTC:NHNCF ), and others trail between 2~3%. In its most recent earnings report, Samsung posted quarterly revenue of $45 billion, up 8.9% year-over-year. Profits were $6.45 billion, up an astonishing 82%. Despite mounting pressure from competitors such as Apple and Huawei on both the high and low-ends, respectively, Samsung’s profits expect to be relatively protected due to its semiconductor business. Samsung’s semiconductor business supplies Apple (NASDAQ: AAPL ) with the A9 chip processor used in Apple’s flagship iPhone 6 and iPhone 6S models. Hyundai Motors is also expected to have good growth prospects. Despite posting record low profits in Q3 of 2015, they recently announced that they would launch a new global luxury car brand called Genesis, targeting large fat profit margins from the higher end of the market. Building off of its current luxury models, the Genesis line will launch with two luxury sedans aiming to combat both the European luxury brands of BMW ( OTCPK:BAMXY ), Mercedes-Benz, and Audi ( OTCPK:AUDVF ), but also Nissan’s ( OTCPK:NSANY ) Infiniti and Toyota’s (NYSE: TM ) Lexus. Investors reacted positively to the news, with Hyundai shares closing 1.85 percent higher at a one-month peak. Considering all these factors, the prospects for growth in the mid-term are quite optimistic. Performance of the South Korean Economy as a Whole Investing in an ETF that closely tracks the performance of the Korean economy is a solid investment because South Korea has a number of economic advantages, including a highly advanced economy (nominal GDP is ranked at 13th highest); a low debt-to-GDP ratio and an accommodative central bank. Recently, the Bank of Korea maintained interest rates at 1.5 percent, but drastically cut the benchmark borrowing costs in half over the past three years in an attempt to defend domestic exporters against the Chinese exporters in a climate of a devalued Chinese yuan. Moreover, Standard & Poor’s upgraded Korea’s credit rating to AA- this past September, the highest rating in nearly two decades. It expressed optimism in the growth prospects of the peninsula, claiming that it was likely to maintain economic growth higher than the bulk of the developed economies in the next three to five years. S&P also expressed optimism at the overall decline in external debt owed by Korean banks and reduced short-term borrowing in total external debt. Conclusion Korea’s world-leading electronics industry, along with optimism in the auto industry appears encouraging for the information technology and consumer discretionary sectors within Korea, both of which are significant components in EWY. A vigorous but an accommodating central bank that is willing to devalue its currency to defend domestic producers and exporters should prove encouraging for the mid-long term growth prospects of the economy as a whole. Despite these positive facets, an investment in EWY is not entirely risk free. Samsung Electronics’ flagship mobile division could underperform, leading to the firm missing analysts’ expectations and driving both the equities of the firm and EWY down; Hyundai’s new luxury brand may not become a cornerstone of automotive luxury as Lexus and Infiniti have become. In conclusion, though, there are many factors that point to an optimistic long-term future for Korea, though it is not without risk. The current pricing appears to be a good point of entry, as a series of recent global circumstances have depressed EWY below its true value. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Can Google’s Search Volume Predict The Market?

The stock market is ultimately a mirror of investor sentiment. Another barometer of investor sentiment could be the number of times the ticker symbol for a company is used as a search term. Google Trends provides a tool that helps track search term volume and it appears to be a forward indicator. Much of human behavior is based on conditioning. Our years, months, weeks and days are clearly mapped out. Within that, our hours, minutes and seconds are all accounted for. You wake up, take a shower, make yourself look presentable, have a cup of coffee out of your favorite mug and you’re off to work. You arrive at work and don’t even remember how you got there. Then you can’t wait to get home where you can eat, relax, look at emails and prepare yourself to do it again the next day. I’ve heard it said that by the age of 35 most of us are on auto-pilot for 80% of our lives. Certainly, if there are patterns in human behavior, there might be some portion of this pattern that provides clues about the direction of the market. Now, I’m no advocate of technical analysis for stock selection, but it can tell you when to buy something you’ve already decided to purchase. In other words, it can help with timing. Measures of volume can give you an idea for the level of interest in the market. Volume, is in a sense, a measure of the market’s current emotion. When that volume lingers, it turns into a “mood”, often trending sideways, up or down over a period of time. Some stocks trend up or down in such predictable ways (within a range) over a long period of time that they can now be said to have a “temperament”. Ultimately, the market is also on auto-pilot. One great thing about being human is this gift of metacognition — the ability to think about the very thing you are thinking about. So let’s ask the question, is there a better way to think about the emotion, mood and temperament of the market? If there is, I’m sure Google has the answer. No, really. They do. Google provides a tool called Google Trends. It shows information on the number of searches for a given “search”. What exactly is a “search”? It’s when someone puts in a word or phrase and then clicks “search”. Easy enough, right? The goal of the “searcher” is to find information about the stock price. So these are presumably investors looking to find more information about a stock. This is a measure of investor interest — good or bad. And, it’s a better measure than volume and momentum, because “searches” are not commitments. This is where people go prior to making a commitment; they do research prior to the investment decision. When the number of searches is abnormally high it could be a sign of eminent change. So, in some ways it is a barometer for potential future action, like a voting poll. I cover banks so let’s look at the top 3 banks in size to see if a compelling trend emerges that can help predict entry/exit points. JP Morgan Chase (NYSE: JPM ), Bank of America (NYSE: BAC ) and Wells Fargo (NYSE: WFC ) are all compelling investments. Though my favorite is Wells Fargo, I also like JPM and BAC. Though WFC edged out JPM in net income again in Q2, JPM is still the largest US bank by assets. Here’s a price/net income chart. JPM data by YCharts And, here’s a chart of searches for the term “JPM” over roughly the same time period: (click to enlarge) Source: Google Trends I drew in the red line. The letters mark news events. You will notice that high search volume is negatively correlated with stock price, which suggests investors search for stock more when the price is going down, but can this be used as a forward indicator; does it have any predictive value? The end of month reading on January 2008 shot up above the red line — this was a change of investor emotion, a change in routine — auto-pilot has been turned off. If you looked at this Google Trends chart on February 1, 2008, you would have seen a spike above the red line. If you sold JPM on February 1, you would have also been one of the smartest people in the world. On August 2009, search volume dropped below the red line which was the start of an increase in price, a new trend. You will notice a spike at (“H”) around the middle of 2013. This is when a news story was put out about JP Morgan Chase in Barron’s. The story created a lot of interest in the stock, but did not result in a sell-off. Indeed, the stock has been fairly steady since August 2009. The dashed line at the end of the chart represents a forecast of future search volume for the term JPM. Based on the search volume forecast, JPM will be going up over the next 3 months, though I don’t know how reliable the forecast can be. The next highest bank in terms of assets is Bank of America . Unlike JPM, BAC’s price has not followed net income which explains the low earnings multiple. Here’s a price chart: BAC data by YCharts And here’s a chart of the search term “BAC” over the same time period. (click to enlarge) This is a little trickier because prior to November 2007, there were no searches for BAC. Suddenly, there’s interest. We go from 0 to 100 (literally) from December 2007 to April 2009. Had you sold BAC on January 1, 2008 (search volume passes above the red line) and purchased again on May 1, 2009 (search volume passes above the upper limit), you could have saved yourself an 80% drop in price. Then from May 2009 to May 2011, searches fell again. Only to have a sharp spike July 2011. Had you sold on August 1, 2011 you could have avoided a 50% sell-off. Here’s a chart of Wells Fargo’s price over the past 10 years. WFC data by YCharts And here’s a chart of the search term WFC on Google: (click to enlarge) January 2008 (just after the “N” mark) was a breakout month for WFC in search volume — this is when folks turned off the auto-pilot and the stock became increasingly volatile. If you sold WFC on February 1, 2008 you would have seemed a genius. The chart also provides a buy signal (folks went back to auto-pilot) when it crossed above the upper red line in February 2009 you would have purchased the stock between $8 and $13. A more prudent investor may want to wait until all “search volatility” has dissipated. Sometime around the beginning of 2011 the market returned to its pre-2008 search volume. At the time the price was around $30. Today’s it’s at $52. Incidentally, the dotted line at the end there looks to be telling us that WFC is trending flat, but again I don’t have much faith in the forecast. A few comments: I’ve noticed that the effectiveness of this tool is only as good at the search term. For instance, Citigroup’s (NYSE: C ) ticker is “C”. It would take some time to clean out the noise. Even a search for “C price” or “C quote” yielded mixed results. There appear to be no correlations between Google Trends and short interest. You might think that as searches go up, short interest would follow, but this is not the case. A big news story, press release (earnings report) will provide a false signal, but you can eliminate this with a quick search. If there are no big news stories, press releases, etc, and search volume is going up, it may be time to sell. While you can ask the chart to show news activity, it does not always pick up company press releases. For example, if we look at the WFC search volume chart (see below) for the past 90 days, we see a spike at July 14, which was an earnings announcement. However, the second spike was the sell off on Aug. 24. The next day WFC hit a price bottom. WFC’s price began trending down on August 19, but the search volume for the ticker symbol did not pass the red line until Aug. 23 (Sunday). So, to put some context on this, on Aug. 22, a Saturday, people woke up and instead of going on auto-pilot they checked on WFC’s price. And, on Monday morning, well, we all know what happened on Monday morning. Now we appear to be back on autopilot, but I’m monitoring closely. (click to enlarge) Google Trends provides data on a daily basis. The presentation here is a snapshot, but if you go to the actual website you will see more granular data. I have an email in to Google to see if I can get a raw data file to run correlations, but that may never happen. I will keep you posted. Each stock has its own temperament. This is not a one “rule” fits all. Finally, to all the critics, this is only research in progress. I am by no means calling this a definitive study, but it’s showing some promising signs. AIAB Subscribers : If you have a bank you would like me to research please send a direct message. I’ve also provided Google Trends charts for the top five non-banks for comparison. Disclosure: I am/we are long WFC, BAC, JPM. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

ETFs To Watch On Increasing Consumer Credit

The Federal Reserve reported on Tuesday that consumer credit increased in July, an indication of rising consumer confidence in a favorable economic environment. It was reported that the volume of consumer credit rose by $19.1 billion or at an annual rate of 6.7% in July, outpacing the consensus estimate of $18 billion. This was preceded by a gain of $27 billion in June. Moreover, with July’s increase, consumer credit finished in the positive territory every month for nearly four years. According to the report, revolving credit in July increased at an annual pace of 5.7% after surging 10% in June. Non-revolving credit, which includes auto and student loans, also witnessed a gain of 7%, preceded by June’s rise of 9.4%. This encouraging report indicated that consumers who play an important role in boosting the U.S. economy are gradually gaining confidence on the back of a recovering economy, low oil prices and a steady labor market. Consumers Boosting Economy The rise in consumer spending has helped the U.S. economy to rebound strongly in the second quarter after witnessing sluggish first-quarter growth. The “second estimate” released by the U.S. Department of Commerce showed that the GDP in the second quarter advanced at a pace of 3.7%, compared to the first quarter’s rise of only 0.6%. According to the report, consumer spending, which contributes more than 75% to economic activity, rose 3.1% during the second quarter, outpacing the first quarter’s growth rate of 1.8%. It contributed more than 2.1% to the second-quarter GDP, the highest by any segment. Meanwhile, the consumer credit report indicated that auto loans – a key component in the non-revolving credit segment – played an important part in boosting debt volume in this section. This is evident from the encouraging auto sales report released recently. In August, automakers witnessed the highest rate of increase in light vehicle sales in the U.S. in 10 years. Along with factors such as low oil prices, a recovering economy and an improving labor market condition, easy availability of credit with lower interest rates and longer repayment periods also helped consumers to spend more in the auto sector. Factors Lifting Consumer Sentiment A steady job market had no little impact in the recent boost to consumer sentiment. Though the U.S. job numbers in August grew at the most sluggish pace in five months, the unemployment rate dropped to 5.1% from 5.2%, the lowest since April 2008. Moreover, the job report showed that average hourly wages rose 0.3% sequentially and 2.2% year over year. Meanwhile, the slump in oil prices is another important factor that enabled U.S. consumers to spend more over the past few months. Oil price skidded to half over the past one year amid increasing production, a large supply glut and sluggish demand. The situation is hardly expected to improve in the near future, as there is little hope of a reduction in oil supply. While the U.S. and Organization of Petroleum Exporting Countries (OPEC) are still producing oil at multi-year highs, Iran is looking to boost its production once the Tehran sanctions are lifted. ETFs to Consider ETFs exposed to sectors that attract a major part of consumer spending are poised to gain from this bullish consumer credit report. As mentioned above, the auto sector was one to receive a significant part of consumer credit in July. In this situation, investors may consider the auto ETF – the First Trust NASDAQ Global Auto ETF (NASDAQ: CARZ ) – in order to tap the positive trend. CARZ holds a Zacks ETF Rank #2 (Buy) and gained nearly 3.9% yesterday and around 3.4% over the past one week. Separately, another sector that receives a notable share of consumer spending is consumer discretionary. Positive consumer credit data also had a positive impact on ETFs that are exposed to this sector. Among them, the Consumer Discretionary Select Sector SPDR ETF (NYSEARCA: XLY ), the SPDR S&P Retail ETF (NYSEARCA: XRT ) and the iShares U.S. Consumer Services ETF (NYSEARCA: IYC ) gained 2.3%, 2% and 2.3% yesterday, respectively. The ETFs mentioned above hold either a Zacks ETF Rank #1 (Strong Buy) or a Zacks ETF Rank #2 (Buy) and may thus be on the radar of investors looking to gain from the favorable scenario. Original Post