After completing a year of uncertainty, the U.S. economy entered
2012 on a more positive note. However, the high rate of
unemployment still hovers over the U.S. economy.
Meanwhile, European woes continue to dominate the headlines and
concerns over a slowdown in China still persist. Beyond these
important economies, events aren't going very well in emerging
markets either, as worries over inflation and growth are plaguing a
variety of important developing nations (Buy These Emerging Asia
ETFs to Beat China, India).
In this backdrop, one region on which an investor can be
cautiously optimistic is the economies of Southeast Asia and their
markets. This bloc is best represented by ASEAN, the Association of
South East Asian Nations, which is a cluster of 10 nations namely
Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam (Forget China, Buy
These Emerging Market ETFs Instead)
Southeast Asia is one of the regions which continued to remain
strong even during the peak of the global financial crisis. It is a
region with growth rates better than Brazil and Russia which makes
it more attractive for investors.
Though it should be noted that in Southeast Asia, economic
activity is somewhat concentrated in four countries namely
Indonesia, Malaysia, Thailand and Singapore. It appears that the
growth caliber of this region is far greater than any other area of
the globe at this time.
Although some of these economies rely heavily on exports to
developed markets for growth, they have turned out to be great
spots for investors in this gloomy environment, as their products
seem to be in high demand despite the downturn (Southeast Asia ETF
Investing 101).
The GDP growth rate forecast in this region also depicts that
these countries are not only growing at a decent rate but are also
well poised for growth going forward.
According to International Monetary Fund (IMF), Malaysia is
expected to grow at the rate of 4.4% in 2012 and 4.7% in 2013 while
for Indonesia the GDP growth is expected to be at 6% for 2012 and
6.3% for 2013. Thailand’s and Singapore’s GDP growth rates are
expected to be at 5.5% and 3%, respectively, for 2012 and 7.5% and
3.5%, respectively, for 2013.
In the ETF space, although there is just one ETF option
available to cover five key Southeast Asia markets, ASEA, there are
a number of ETFs that aim to provide exposure to individual
countries. With that being said, out of the ten nations of the
Southeast Asia region, we would highlight those nations that have
performed the best over the last one year.
Despite the gloomy marketplace and weakness in a number of
regions, these ETFs have held their own, delivering double-digit
gains for investors. Each of these has been briefly
highlighted below:
iShares MSCI Malaysia Index
(EWM)
Although the ETF’s performance was not impressive in 2011, the
fund rebounded this year on a strong note and is expected to
continue with its strong performance for the rest of the year
(Malaysia ETF: the Perfect Emerging Market Fund?).
Investment in Malaysia economy remains an intriguing choice for
investors as uncertainty surrounds most of the global financial
market. This economy is considered to be one of the stable regions
for investment in this lingering economic stalemate.
For investment exposure to this stable region, investment in the
iShares MSCI Malaysia Index could be an interesting play. The fund
is linked to the MSCI Malaysia Index which is comprised of
companies that are traded primarily on the Kuala Lumpur Stock
Exchange with major focus on sectors like financials, industrials
and consumer staples.
This produces a fund which is home to 45 Malaysian stocks,
manages an AUM of $968.2 million and trades with a volume of more
than two million shares a day.
The performance of the fund has been quite impressive over the
period of one year as it delivered a return of 22.4%. This is much
better than a return of 9.75% in the year-to date period.
All the 45 constituents in the portfolio are large cap
companies. Among sector holdings, financials enjoys the heaviest
weighting in the fund (31.2%), followed by industrials (13.6%) and
telecommunication services (12.5%).
The fund is concentrated in the top 10 holdings assigning more
than 50% of the asset base to it. For this, the ETF charges an
expense ratio of 52 basis points annually.
iShares MSCI Singapore Index ETF
(EWS)
For investors seeking a pure play in the Singapore equity
market, EWS could be an interesting pick. The product tracks the
MSCI Singapore Index which consists of stocks traded primarily on
the Singapore Stock Exchange with a major focus on sectors like
financials, industrials and telecommunication services (Singapore
ETFs for the Rise of Asian Financial Centers).
Singapore has made a name for itself by banking on the few
advantages that it has: a prime location and a well-educated
workforce. The country capitalized on these positives and turned it
into a business hub for all of Southeast Asia.
Now the country has a major port, both in terms of air and sea,
and has developed an export-driven economy with massive industries
in key sectors such as electronics and oil refining.
The fund has gained 24.9% over a period of one year which is
especially good considering that the fund lost nearly 17.9% last
year. Clearly, the shift of investor confidence in this part of the
global market has had a very positive impact on this fund.
EWS manages an asset base of $1,455.9 million which it invests
in a cluster of 33 stocks. It trades in volumes of more than two
million shares a day.
However, the fund is neither devoid of company specific risk nor
sector specific risk. From a sector perspective, financials makes
up 47.9% of the total exposure with double-digit allocation also
made to industrials and telecommunication.
From an individual holding perspective, the fund assigns nearly
63% of its asset base to the top 10 holdings. Among the top 10,
31.4% of the asset base goes towards the top three holdings. The
fund charges a fee of 52 basis points annually.
iShares MSCI Philippines Investable Market Index ETF
(EPHE)
Investors looking for exposure in the Philippines equity space
can invest in EPHE. The fund tracks the MSCI Philippines Investable
Market Index which is a market capitalization weighted index
designed to measure the performance of equity securities in the top
99% in market capitalization of the Philippine equity markets.
Despite the uncertainty in the global economic environment, the
Philippines has strived to improve its economy and build a strong
platform for growth. As a result, the economy began the year on a
positive note after last year’s lackluster performance (Time to
Worry about the Philippines ETF?).
The long-term fundamentals for the economy look good in view of
the stable political situation and the popular government that is
committed to accelerate the pace of reform in the country.
The fund provides exposure to total holdings of 41 Philippine
stocks. The fund manages an asset base of $156.4 million and trades
at a volume level of 0.1 million shares a day.
By providing exposure to 41 companies, the fund has been able to
deliver a remarkable return of 39.2% over a period of one year.
EPHE also appears to be quite concentrated in its top 10
holdings with 57% of the asset base going towards them. Among
individual holdings, SM Investments takes the top spot with a share
of 10.6%. For the rest of the basket, the fund does not allocate
more than 7.36%. For this, the fund charges an expense ration of 41
basis points annually.
iShares MSCI Thailand Investable Market Index ETF
(THD)
iShares MSCI Thailand Investable Market Index ETF is designed to
track the performance of the MSCI Thailand Investable Market Index.
This produces a fund which is home to 84 Thai stocks (Is the
Thailand ETF Unstoppable?).
The fund has been able to amass an asset base of $636.3 million
since its inception and trades at a volume level of 0.3 million
shares a day. Although the ETF does not appear to be popular, its
performance has been quite remarkable. THD is the best performing
ETF in the list, delivering a robust return of 43.51% over a period
of one year.
The fund, however, is guilty of concentration, with both
company-specific risk and sector-specific risk running high. The
fund assigns 57.7% of the asset base to its top 10 holdings. Among
sectors, financials, energy and materials take up a share of 69% of
the asset base while it charges an annual fee of 59 basis
points.
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GLBL X ASEAN 40 (ASEA): ETF Research Reports
ISHARS-MALAYSIA (EWM): ETF Research Reports
ISHARS-SINGAPOR (EWS): ETF Research Reports
MKT VEC-INDONES (IDX): ETF Research Reports
ISHRS-MSCI THAI (THD): ETF Research Reports
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