EWA: Australia Lagging Its EAFE Peers, Chart Issues Too

The iShares MSCI Australia ETF (EWA) has underperformed the broader EAFE Index despite a 10% gain in 2025, primarily attributed to its substantial exposure to the volatile Materials sector. Valuation concerns persist, with EWA trading at a premium price-to-earnings and high PEG ratio despite modest long-term growth prospects. Additionally, technical analysis indicates the ETF is struggling below long-term resistance with weak bullish momentum, leading an analyst to maintain a 'hold' rating due to concentrated sector risk, valuation issues, and unfavorable technicals.

Analysis

The iShares MSCI Australia ETF (EWA) is exhibiting significant underperformance relative to the broader EAFE Index, despite posting a 10% year-to-date gain in 2025. This lag is primarily attributed to the ETF's heavy concentration in the Materials sector, which exposes investors to the ongoing volatility in industrial metals prices. From a fundamental perspective, valuation presents a notable concern; EWA is trading at a premium price-to-earnings multiple and a high PEG ratio, which appears unjustified given its modest long-term growth prospects. The technical outlook is similarly weak, with the ETF failing to break through long-term resistance levels, displaying no clear bullish momentum, and facing historically unfavorable seasonal trends. These combined factors—sector concentration risk, elevated valuation, and lackluster technicals—support the analyst's neutral 'hold' rating on the ETF.

Key Decisions for Investors

• Investors currently holding EWA should consider trimming positions or at least refrain from adding capital, given the combination of premium valuation and negative technical signals.
• Prospective investors should exercise caution and await a more favorable entry point, as the current risk/reward profile is skewed by sector volatility and the ETF's failure to overcome technical resistance.
• Monitor key catalysts such as a sustained recovery in industrial metals prices or a decisive technical breakout above long-term resistance before considering a more bullish stance on Australian equities via this vehicle.