Asia emerging market exchange traded funds (ETFs) have taken quite a beating during the recent equities sell-off. However, don’t count out these ETFs just yet as they provide exposure to quickly expanding economies with great untapped potential.
Growth in Asia comes in varying degrees among the different sized economies, depending on which country you are looking at. For instance, China has been an exciting growth story for the markets and has moved into position as the world’s second largest economy. The term “emerging market” has been loosely defined, but countries with this label are considered emerging because of their current economic developments and reforms.
The economies that make up the region are in various stages of development, but they have been showing rapid expansions, nonetheless. Many of the countries in Asia boast young populations, robust export businesses and a growing middle class that is eager and willing to spend. These emerging markets are in a transitional stage in their development, moving from a closed economy to a more open market economy, while further reforming their own governmental systems. Through greater economic reforms and development, these countries will aim for stronger and more sustainable economic growth, along with advancing their transparency and capital market efficiencies. [ETFs for Getting Your Asia Fix]
As an emerging market continues to expand, both local and foreign investment will begin to pick up. Eventually, given enough time and capital, total levels of production should gradually rise, expanding the country’s gross domestic product, and further diminish the gap between the emerging market and the developed world. According to the World Bank’s assessment on East Asia and Pacific region, real GDP growth in East Asia will rise 8% in 2011 and 2012 from 9.6% in 2010. [ETF Strategies for Frontier and Emerging Markets]
Due to the transitional characteristic of the emerging markets in Asia, the growth, along with potential investment opportunities, could include greater volatility and risk; however, the prospects of greater returns may outweigh the potential risks. Emerging market governments are not as stable as the developed world’s. Consequently, foreign investors need to be aware that the government’s actions may lead to the nationalization, expropriation or the collapse of their domestic capital markets. Additionally, any potential perceived risks to the countries may result in quick movements, or high volatility, in their equities markets.
Emerging Asia ETFs:
- SPDR S&P Emerging Asia Pacific ETF (NYSEArca: GMF)
- Global X FTSE ASEAN 40 ETF (NYSEArca: ASEA)
- First Trust ISE Chindia Index Fund (NYSEArca: FNI)
- iShares S&P Asia 50 Index Fund (NYSEArca: AIA)
The SPDR S&P Emerging Asia Pacific fund’s top country weightings include China 35.80%, Taiwan 27.77%, India 17.29%, Malaysia 7.59% and Indonesia 4.98%. Top sectors include Financials 25.72%, Info Tech 21.89% and Energy 12.34%.