Rutledge Review: Asian ETFs

11/25/2005 12:00 am EST


John Rutledge

Founder and Chairman, RutledgeCapital, LLC

John Rutledge, a member of the Reagan White House staff, a leveraged buy-out specialist, and private fund manager is the founder of Rutledge Capital and also runs the Mundell Int’l Business School in Beijing. Here, he discusses his favorite Asian markets.

"I’m a top-down ETF investor. I’m long Japan, Australia, and Korea. I stick with what I know, which means long-term value-driven propositions. The framework that I work from is pretty simple. Because China’s legal and accounting systems are still weak, I believe the best way to invest in China is through third countries.

"For example, Korea produces most of the technology China is using right now. As such, to invest in the growth of technology in China, I like the iShares Korea (EWY ASE). Similarly, to invest in the growth of the coal and gas markets in China, I would use iShares ex-Japan (EPP ASE), which is an exchange traded fund that gives you exposure to the Pacific Rim, exclusive of Japan. EPP provides exposure to Australia, New Zealand, Hong Kong, and Singapore.

"If you want direct exposure to Japan, you can use the iShares Japan (EWJ ASE). Japan is an interesting story because it stopped interest rate targeting on March 19, 2001, and started to take more decisive action to end real estate deflation. The real interest rate in Japan was about 1,000 basis points measured properly using real asset prices for the 1990s.

"The real estate markets have now largely healed and I think Japan is turning around in a pretty serious way. Prime Minister Koizumi’s reforms help, but the essence is that the market has been liquefied again. Japanese companies are starting to produce free cash flow and are facing shareholder pressure to raise dividends. I think Japan’s going to become a dividend growth market over time."

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