Asia-Pacific Summit Fallout: 3 Trading Ideas

For the first time in nearly three decades, Pacific rim leaders were unable to reach agreement on a joint declaration regarding world trade at the Asia-Pacific Summit held in Papua New Guinea over the weekend. The world's two largest economies, the United States and China, refused to budge on language in a final statement.

The United States wanted the declaration to use decisive wording about unfair trade practices, such as intellectual property theft and forced technology transfers, which it accuses China of engaging in. China, on the other hand, wanted the declaration statement to use wording that opposes protectionism and unilateralism – conduct it claims the United States is using. "I don't think it will come as a huge surprise that there are differing visions on particular elements in regard to trade," Canadian Prime Minister Justin Trudeau told reporters Sunday, per Bloomberg. "That prevented there from being a full consensus on the communique document," he added.

Despite the acrimonious conclusion to the two-day Asia-Pacific Summit, exchange-traded funds (ETFs) that cover these countries appear to be forming bottoming patterns that offer short-term long opportunities for speculative traders who relish a contrarian play. Let's look at several tactical trading ideas.

iShares MSCI All Country Asia ex Japan ETF (AAXJ)

With $3.45 billion in assets under management (AUM) and launched in 2008, the iShares MSCI All Country Asia ex Japan ETF seeks to provide similar returns to the MSCI AC Asia ex Japan Index. The fund's portfolio holds large- and mid-capitalization stocks from both developed and emerging markets. AAXJ has an average spread of 0.03% and average daily trading volume (ADTV) of $77.3 million, making it a suitable instrument for short-term trading. As of Nov. 20, 2018, the fund is down 12.73% year to date (YTD), but it has posted a modest 1.02% gain over the past month. Investors pay a 0.67% annual management fee and collect a 2.6% dividend yield.

The fund's price has trended lower for the majority of 2018. However, a possible inverse head and shoulders (H&S) pattern is forming that suggests a potential upside trend reversal. Traders who buy at current levels could place a stop under the right shoulder and take profits at the $73, where the price is likely to encounter resistance from a multi-month downtrend line and the 200-day simple moving average (SMA).

Chart depicting the share price of the iShares MSCI All Country Asia ex Japan ETF (AAXJ)

iShares MSCI Hong Kong ETF (EWH)

The iShares MSCI Hong Kong ETF, with AUM of $2.25 billion, aims to track the performance of the MSCI Hong Kong Index. EWH's basket holds stocks listed on the Hong Kong Stock Exchange. The fund, created in back in 1996, has a significant tilt toward the financial sector with a 63.01% allocation. Investors receive a 5.13% dividend yield and pay a reasonable 0.48% management fee. Although the ETF has a poor YTD return of -8.6%, it has performed better over the past month, gaining 3% as of Nov. 20, 2018.

EWH dropped 18% over a five-month period between early June and late October before staging a 6.6% recovery this month as of Nov. 19. Those who enter a long position should consider setting a stop just beneath the Nov. 14 low. Think about booking profits between $24 and $24.5 – an area the price may run into resistance from the 200-day SMA. The ETF's price may stall at $23.5 due to a downtrend line that extends back to June – traders could move stop-loss orders to the breakeven point at this level to protect trading capital.

Chart depicting the share price of the iShares MSCI Hong Kong ETF (EWH)

iShares MSCI South Korea Capped ETF (EWY)

Formed in 2000, the iShares MSCI South Korea Capped ETF attempts to replicate the returns of the MSCI Korea 25/50 Index by investing in large- and mid-cap South Korean companies. Trading at $59.96, with AUM of $3.38 billion and a 3.75% dividend yield, the fund is down 18.28% on the year as of Nov. 20, 2018. EWT has an expense ratio of 0.59% – higher than the 0.44% category average.

Like AAXJ, the EWY chart appears to be forming an inverse H&S pattern after five months of steady declines. Traders who wish to take this speculative trade should protect the position with a stop placed slightly under the November low. A take-profit order could sit at the $66 level, where the price may find resistance from a downtrend line that connects the April, June and September swing highs.

Chart depicting the share price of the iShares MSCI South Korea Capped ETF (EWY)
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