Copies of the annual reports transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 are attached.

AUGUST 31, 2019

 

2019 ANNUAL REPORT

       iShares Inc.

 

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iShares MSCI Austria ETF | EWO | NYSE Arca

 

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iShares MSCI Belgium ETF | EWK | NYSE Arca

 

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iShares MSCI France ETF | EWQ | NYSE Arca

 

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iShares MSCI Netherlands ETF | EWN | NYSE Arca

 

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iShares MSCI Sweden ETF | EWD | NYSE Arca

 

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Table of Contents

Market Overview

iShares, Inc.

Global Market Overview

Global equity markets declined for the 12 months ended August 31, 2019 (“reporting period”). The MSCI ACWI, a broad global equity index that includes both developed and emerging markets, returned -0.28% in U.S. dollar terms.

Volatility characterized the reporting period as global stocks declined sharply, rebounded strongly, and decreased again, finishing the reporting period nearly flat. Markets declined worldwide late in 2018, driven by slowing global economic growth and trade tensions, particularly between the U.S. and China. In the first half of 2019, markets rebounded with a shift to more stimulative monetary policies, expectations of improving trade relations, and sustained consumer spending. However, renewed escalation of trade tensions and slowing industrial production weighed on markets late in the reporting period.

The most influential central banks reacted to signs of an economic slowdown by changing their outlooks for interest rate policy, benefiting markets in 2019. The U.S. Federal Reserve Bank (“Fed”) increased interest rates twice in late 2018, held interest rates steady for six months, then lowered interest rates in July 2019 for the first time in 11 years. While maintaining negative short-term interest rates, the European Central Bank (“ECB”) signaled that it would reduce interest rates and bring back its monetary stimulus program if slow growth persisted. The Bank of Japan (“BoJ”) also sustained negative short-term interest rates and signaled a possible future decrease. China, the second largest economy in the world, enacted stimulus measures, including infrastructure spending and tax cuts.

The U.S. stock market advanced modestly as unemployment decreased to its lowest level in 50 years, despite variable economic growth. Consumer spending was robust, as job growth and rising wages corresponded with an increase in borrowing. Government spending also increased, reaching its highest level in nine years. A budget deal reached in July 2019 established plans to increase spending further while allowing the government to exceed spending limits for the next two years. Consequently, the federal budget deficit increased, and bond issuance by the U.S. Treasury Department reached a record high. The trade dispute between the U.S. and China worsened late in the reporting period, as the Chinese yuan weakened, the U.S. declared China a currency manipulator, and investors reduced their expectations for a resolution in the near future. Thereafter, China announced $75 billion in tariffs on automobiles, food, and agricultural products, prompting a retaliatory increase in existing tariffs on Chinese goods.

The Eurozone economy grew at a slower pace, as inflation declined to 1% annually, well below the ECB’s target of 2%. Ongoing trade tensions and the subsequent slowdown in global trade flows led to stagnant growth for export-reliant European economies like Germany and the Netherlands. A decline in manufacturing activity late in the reporting period weighed on Eurozone economies, as demand for equipment weakened, and Brexit-related uncertainty negatively affected economic growth.

Emerging markets declined during the reporting period, due to a strengthening U.S. dollar and slower global trade. The relative strength of the U.S. economy meant that the U.S. dollar appreciated against most currencies, leading to concerns among investors about foreign-denominated debt. Slower global growth and rising protectionism dampened global trade, which particularly worked against emerging markets, as a relatively larger portion of their economies is supported by international trade. Similarly, corporate earnings and stocks declined in the Asia Pacific region, as countries that supply China with industrial and consumer goods and services were negatively impacted by China’s recent struggles.

Investment Objective

The iShares MSCI Austria ETF (the “Fund”) seeks to track the investment results of a broad-based index composed of Austrian equities, as represented by the MSCI Austria IMI 25/50 Index (the “Index”). The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index.

GROWTH OF $10,000 INVESTMENT

(AT NET ASSET VALUE)

Index performance through February 11, 2013 reflects the performance of the MSCI Austria Investable Market Index. Index performance beginning on February 12, 2013 reflects the performance of the MSCI Austria IMI 25/50 Index.

Past performance is no guarantee of future results. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares. See “About Fund Performance” on page 14 for more information.

Portfolio Management Commentary

Stocks in Austria declined sharply for the reporting period amid slowing economic growth and political instability. As in much of the Eurozone, Austria’s manufacturing sector weakened and export growth moderated as concerns intensified about the impact of global trade and Brexit on the country’s economy. Meanwhile, the consumer sector remained resilient, with rising consumer spending and declines in the country’s unemployment rate, which ended the reporting period lower than the Eurozone average. On the political front, financial markets declined amid a shakeup following revelations of a bribery scandal.

The financials sector was the leading detractor from the Index’s return, driven almost entirely by declines among banks. Austrian banks continued to face persistently low interest rates, which constrained profits as loan margins narrowed, leading to lower interest income. Austrian banks also declined amid allegations of involvement in a Russian money laundering scheme. Profits were further dampened by losses related to a lawsuit against a Romanian subsidiary.

The materials sector detracted meaningfully, driven lower by the metals and mining industry. Steel producers contended with higher prices for iron ore, a key input for steelmaking, due to global production disruptions. Industry profits were also lower as demand for steel products from the automobile industry declined.

The industrials sector was another notable detractor, declining amid lower industrial production, particularly of capital goods. The industrial machinery industry was the most notable detractor in the sector, weighed down by slowing demand from carmakers for engineering systems and plants. On the upside, the utilities sector contributed to the Index’s return, advancing on higher electricity prices and gains in renewable energy production such as hydropower and wind turbines.