Take Your ETF Portfolio On An Asian Vacation
While Europe suffers under extreme economic turmoil, Asia is looking good… Very good, in fact. Not that you’d know that by listening to Wall Street. It still tends to think Asia is closely hitched to the United States’ shopping whims. But that is quite simply no longer true. Much of the U.S. and Europe’s demand vanished overnight when credit markets froze in 2008. But Asian economies barely paused before resuming their ascent.
Excluding Japan, they are expected to grow collectively by as much as 8% this year. Individually, Singapore should grow by over 6%, Malaysia by at least 5.5% and even battered Thailand by 5%.
Just last year, that would have seemed impossible. And it would have been if not for China.
What China Wants, Asia Ships… Very Happily
China, the world’s biggest exporter, has emerged as a significant consumer. Overall, its import volumes are now a fifth higher than its pre-Lehman peak.
That kind of demand paid off for its neighbors. Many Asian countries more than doubled their exports to China since the depths of the recession in late 2008 and early 2009.
•Exports from Taiwan rose more than 160% from the bottom.
•Singapore boosted its own by over 120%.
•South Korea by nearly 100%.
In absolute terms, nearly 30% of Taiwan’s exports go to the mainland. And South Korea sends a quarter of its own to China. Both send less than half those amounts to the U.S. It makes sense considering how Chinese consumers bought more cars and cell phones than Americans did last year.
David Carbon, the chief economist of Southeast Asia’s biggest bank, DBS Group ADR (OTC: DBSDY), calls Asia’s newfound trends a long-term shift. He says it is driven by a surge in sustainable and self-generating domestic demand from economic growth.
“Two big misconceptions about Asia’s recovery are that it is has been driven by inventories and that consumption continues to lag. In fact, consumption has played the major role in Asia’s recovery, both directly and indirectly via its impact on inventories.”
That shows most in China, where domestic demand increased by $180 billion last year. But consumption is up in the rest of Asia. Excluding Japan – again – it has risen more than 7% above September 2008 levels.
Beijing is obviously behind that shift too. Vice President Xi Jinping recently said that China “must develop the economy mainly by relying on the domestic market and attach great importance to domestic demand, especially consumption demand.”
Play Asian Growth for All its Worth
Rapidly rising incomes have Chinese citizens looking a lot like the West these days. And just like U.S., consumers are key for Chinese exporters, Chinese consumers are key for the rest of Asia and the emerging world.
Trade patterns globally have begun to shift. Asia keeps accruing wealth, seeking new patterns of economic growth as it does. That includes forging new alliances.
Commodity producing economies – Brazil, Russia, Indonesia and Canada – and those consuming them – China, South Korea and Japan – are reinforcing each other. South Korea, for example, sells 70% of its finished goods to emerging markets.
China is sucking in all sorts of commodities. That gives the companies and countries supplying them more money to buy manufactured goods. And many of those goods are made right back in China. It’s a profitable cycle for the Asian giant.
And it can be profitable for investors too.
Perhaps the easiest way to get involved is through a few well-placed ETFs. Specifically, two broad-based examples offer exposure to China/Hong Kong, Taiwan, South Korea and Singapore:
•iShares MSCI All Country Asia exJapan Index Fund (NASDAQ: AAXJ)
•iShares S&&P Asia 50 Index Fund (NYSE: AIA).
While the rest of the world cries over poor U.S. unemployment figures and a severely damaged European Union, Asia will continue to grow. And so can smart investors’ portfolios if they follow the money.