Sean Geary: Investors seeking exposure to the explosion of middle class growth in frontier and emerging markets have started to turn their attention to Southeast Asia. Here are a few of the ETFs that focus on countries in this region.
The Association of South East Asian Nations (ASEAN)
Vietnam (NYSEArca:VNM) is an example of a rapidly expanding middle-class and a young population. Seen as an alternative to an increasingly expensive China, Vietnam will look to lure foreign multinationals with its cheap labor force.
Although Vietnam continues to grow (GDP growth is projected to be 6.1% for 2012), it has not been without a price. Inflation remains in the high teens and a recent rate cut by the Vietnamese central bank will not help the problem.
For investors looking for Vietnamese exposure, VNM is ideal because finding companies listed on the NYSE and NASDAQ with significant Vietnamese ties is quite difficult. The Market Vectors Vietnam ETF’s three largest weighted sectors are financials (40.8%), energy (25.8%), and industrials (13.2%).
Compared to its larger neighbors, Malaysia (NYSEArca:EWM) and its middle class are better developed. This export-driven economy continues to grow at a respectable clip (a projected 5% for 2012) while maintaining a more stable currency regime than neighbors like Vietnam.
The Malaysian economy is largely export-driven, depending heavily on exports of oil, natural gas, palm oil, and electronics. Malaysia has a thriving middle class that grows progressively wealthier.
Even though oil and gas production is a major component of Malaysia’s economy, the iShares MSCI Malaysia Index Fund offers no exposure to the sector. Malaysia’s oil and gas interests are entirely nationalized and operated under state-owned Petronas.
Although EWM is unable to include energy holdings in its basket, the fund is able to track the exchange in Kuala Lumpur reasonably well while capturing the investment theme of a progressively-wealthier middle class. EWM’s largest weightings are financials (28.9%), industrials (18.6%), and consumer cyclicals (10.7%).
Another emerging market in Southeast Asia with a thriving middle class and sizable export sector is Thailand (NYSEArca:THD). Like Malaysia, Thailand’s middle class is more developed than those of Vietnam and Indonesia. However, exports make up a larger percentage of Thailand’s GDP than Malaysia.
Thailand depends heavily on the manufacturing of electronics. This segment of the Thai economy gained worldwide attention after last year’s devastating floods crippled factories which hampered global supply chains. Although Thailand’s economy suffered last year as a result of the widespread flooding, Thailand’s central bank governor sees the economy experiencing a strong recovery this year.
Investors seeking exposure to Thailand should look no further than iShares MSCI Thailand Index Fund. The fund’s three largest weightings are financials, energy, and basic materials.
Indonesia (NYSEArca:IDX) has been an emerging market darling for years. The world’s fifth largest population offers a compelling growth story highlighted by a rapidly-growing middle class.
Indonesia has a reasonable inflation rate of 3.56%. Further, GDP growth is projected to be as high as 7% in 2012. This large commodity producer is also set to benefit from increased commodity prices globally.
Traders looking to invest in Indonesia should think about the Market Vectors Indonesia Index ETF. The fund has been on a massive run over the past three years, appreciating 250% since its inception. The fund’s three largest sector weightings are financial services (24.7%), basic materials (22.7%), and consumer defensive (14.8%).
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