Eric Dutram: 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 (NYSEARCA: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 (NYSEARCA: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 (NYSEARCA: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 (NYSEARCA: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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