Investors have been keen on capitalizing on the quick growth of emerging markets through exchange traded funds (ETFs) that provide exposure to these growing economies. But one region stands out from the rest: Asia.
The Case for Asia
If you’re picturing much of Asia as a provincial, poor landscape, think again. While the economies that make up the continent are in various stages of development, they’re growing quickly. Many of the countries in Asia boast young populations, robust export businesses and a growing middle class that’s eager and willing to spend.
The U.S. government clearly recognizes the growing importance of Asia on the world stage: President Obama is in the middle of a 10-day tour. His aim is to boost the U.S. economy’s ties with the top Asian economies.
Growth in Asia has come in varying degrees, depending on which country you’re looking at. China, for example, has been an exciting growth story for the markets and has moved into position as the world’s number two economy while fully-developed Japan has languished amid a weakening yen and an aging population.
For that reason, it doesn’t necessarily make sense to consider the economy of the Asian continent in one big lump. This area of the world has a lot of moving parts, though they’re interconnected in some ways, too.
Asia’s Highlights
Japan is the truly developed market of the lot, but deflation has enervated the Japanese economy, and there is still no real sign of a quick fix for Japan’s economic woes. Exacerbating the situation, a stronger yen has kept the economy from gaining as much ground as other Asian markets have. The Japanese stock market is now valued at a quarter of what it was in 1989 and real estate prices are equivalent to 1983 prices. The government has racked up debt of about 200% of GDP, the population is shrinking and poverty is on the rise.
China is a popular investment locale, with its growing middle glass and robust export base. The Chinese market is emerging as a premier destination for multinational corporations, while Chinese companies are developing into global name brands that will soon compete with established international brands. China’s government is moving toward domestic consumerism by implementing policies designed to attract greater consumer demand.
Of the world’s fastest-growing economies, India seems to be flying higher than most these days and it’s not without good reason. India is blessed with a young and capable workforce that is relatively well educated and English speaking. They also have a good ratio of children to adults of working age to seniors. The country’s private companies aren’t dependent on state patronage the way that Chinese companies are. In fact, private company growth is primarily fueled by entrepreneurs and business investment. The government has also become proactive in addressing the debt bolstering capital markets.
South Korea is a high-tech exporting economy that has thrived in the global credit crisis. In the first quarter of 2010, GDP increased by nearly 8.2% from a year earlier. South Korea’s GDP is expected to grow by at least 5.75% this year, and their debt is low with balance sheets looking tight. The country is enjoying a current account surplus, thanks to strong exports, particularly in the area of semiconductors and automobiles. Additionally, As MSCI put it, South Korea “continues to meet most developed markets criteria… notably economic development, market size and liquidity.”
Asia’s Younger Economies
Indonesia, the fourth most populous country in the world, is likened to China in its earlier stages. This year has been kind to the nation. Moody’s has raised the country’s sovereign debt rating to positive from stable, pointing to Indonesia’s “capacity for sustained strong growth and the overall stability and effectiveness of its fiscal and monetary policies”.
Vietnam has a large young demographic, is rich in resources, rapidly industrializing and has a government that is promoting business. The country’s economy has averaged a 7.3% GDP growth per year for the last 20 years. Labor disputes in China have also helped Vietnam’s appeal as an “off-shoring” locale from China due to its lower wage costs.
Malaysia is on an economic expansion plan after a new budget was revealed. Presenting the budget, the prime minister outlined the challenges the country is facing in terms of attracting foreign direct investment. So the 2011 agenda has a lot to do with expanding the economy, to boost appeal to investors.
The outlook for Thailand’s economy is looking much improved in the wake of unrest in the country in May, which hurt tourism and foreign investment. Thailand may look like a promising Southeast Asia market, but unrest and political risk continues to threaten to destabilize the economy. The country is heavily reliant on its exporting industries.
These aren’t all of the Asian countries, of course – there are plenty of others that are also available for investing via ETFs, including Singapore and Hong Kong.
Getting Exposure to Asia With ETFs
How much is too much, though? While the Asian economy has made huge strides in the last decade alone, the World Bank recently issued a caution on East Asian countries. While the report raised its economic outlook for the countries, it also warned of possible asset bubbles and slower growth as a result of foreign investment.
For that reason, we suggest watching Asia’s ETFs closely if you own them for your clients. Be prepared with a sell plan if this region exhibits any signs of trouble. You can easily do this in two ways: one, by incorporating Asia ETFs into your watchlist on the ETF Dashboard and two, by setting up alerts to be notified by email of any trading opportunities.
The ETF options for investing in Asia are plentiful, ranging from broad-based emerging Asia Pacific or Asia ex-Japan funds that hold emerging Asian countries. There is also a growing number of single-country Asia ETFs. Keep in mind, though, that the more narrow your exposure becomes, the more sensitive an ETF might be to shifts in the region.