Up Jumps Asia

Is Japan’s decision to boost its inflation target providing a lift for Asian ETFs?

After closing lower for three out of the past four trading days, the iShares MSCI Japan Index Fund ETF (NYSE: EWJ) soared by more than one and a half percent on Wednesday to finish near its highest levels since October 2011.

But what may have been even more impressive was the fact that rallying in sympathy were Asian ETFs like the iShares MSCI South Korea Index Fund ETF (NYSE: EWY), up three-quarters of a percent after pulling back for two out of three days, and the iShares FTSE/Xinhua China 25 Index Fund ETF (NYSE: FXI). Like EWJ, the China ETF had closed lower for three out of four sessions before rallying by more than 1% in Wednesday’s trading.

That this was not necessarily a broad-based move higher among global stocks was evident in the persistent weakness in ETFs like the iShares MSCI Brazil Index Fund ETF (NYSE: EWZ). EWZ reversed lower on Wednesday, returning to technically oversold territory above the 200-day moving average, and finishing down for the fourth day out of the past five. Also selling off for a second day and losing more than three-quarters of a percent was the iShares S&P Latin America 40 Index Fund ETF (NYSE: ILF). ILF has closed lower for three out of the past four.

Is there upside remaining in the Asian funds? And how close are the Latin American ETFs to levels where buyers have considered them cheap in the short-term and worth buying for trade to the upside? EWY, FXI and EWJ all have earned neutral ratings ahead of trading on Wednesday, with recent strength helping lift each out of oversold territory. As such, while the funds could go higher, the biggest edges have begun to fade.

By contrast, the Brazil ETF has earned ratings of 7 out of 10 which, while still in the neutral category, does suggest the potential for a reversal if sellers remain dominant. EWZ has a short-term, positive edge of nearly 1%, while the positive edge in the ILF in the short-term is just over three quarters of a percent.

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David Penn is Editor in Chief of TradingMarkets.com