It just might be one of the biggest, far-reaching pacts of the
decade -- and I'm betting you've never heard of it. It will govern
business in more than a dozen countries, influence the shopping
patterns of 1.9 billion consumers and facilitate trade in a region
now stands at $6.6 trillion and rising.
I'm talking about the China-ASEAN Free Trade Agreement (
). The historic agreement took effect January 1st of this year with
barely a word from the financial media (at least in this
hemisphere). Undersea earthquakes also pass without notice, but the
tsunamis that follow are felt around the world. I think that's
what's been unleashed here: a massive wave of economic activity
washing over the Pacific Rim.
We all know that China has an insatiable appetite for just about
every raw material you can imagine. Each year the country devours
mountains of foreign coal, oil, copper and iron ore (among others)
to feed the its economic engine. Those supplies often come from
distant lands like Brazil, but many orders are increasingly placed
with nearby neighbors.
Palm oil is coming in from Indonesia, rubber from Malaysia and
petrochemicals from Singapore. China's imports aren't merely
limited to natural resources, either -- manufacturers in the
Philippines are busy sending over semiconductors and Taiwan has
seen surging demand for products like computers and mobile phones.
Annual trade between China and the Association of Southeast Asian
) had already mushroomed from $40 billion in 2000 to $193 billion
last year. But the new agreement (the world's largest in terms of
population coverage) has removed old fetters and paved the way for
almost unrestricted trade.
Tariffs on 90% of ASEAN goods entering the Chinese marketplace have
been virtually eliminated, with rates slashed from 9.8% to 0.1%.
This duty-free shopping will make it easier than ever for Asian
producers to get their products in the hands of Chinese consumers.
Likewise, Chinese goods being shipped out will see favorable
It's only been a few months, but the early results are nothing
short of extraordinary.
Taiwan enjoyed its strongest export gains in 30 years in January,
with sales to China surging +188%. By comparison, exports to the
United States grew +14%. And as I told my
readers in April, Indonesia is also on the fast track after China
gobbled up $3.1 billion worth of Indonesian goods last quarter, a
China has leapfrogged the United States to become ASEAN's third
largest trading partner. At the current trajectory, it's only a
matter of time before it becomes the biggest.
That growth will open up a world of opportunities for a wide range
of companies. As was the case with the North American Free Trade
), some industries will struggle to remain competitive in the new
playing field, but others will feast. The agreement will eliminate
barriers, promote efficiency, create jobs and bolster the spending
power of Asian consumers.
Some of the robust percentage gains can be attributed to the fact
that we were gripped by recession this time last year. But the
latest tabulations from China's General Administration of Customs (
) show that trading activity remains scorching hot. In May, China
reported a +48.3% jump in imports and a +48.5% surge in exports,
transactions valued at $244 billion dollars.
By comparison, the total from May 2008 maxed out at $221 billion.
In other words, Asian trade isn't just recovering -- it has blasted
past pre-recession levels. And that's why I continue to steer my
readers toward the
SPDR Emerging Southeast Asia (NYSE:
exchange-traded fund (
Launched in 2007, GMF is designed to mirror the performance of the
S&P Asia Pacific Emerging Markets Index . The portfolio covers
nearly all of the nations that stand to benefit from CAFTA. About
one-third of the fund's assets are invested in China, while the
remainder is judiciously spread among Taiwan, Malaysia, Indonesia
and several others.
The fund isn't specifically geared toward trade per se, but the
bulk of the portfolio is invested in sectors like information
technology, materials and consumer discretionary that will enjoy a
stiff tailwind from the relaxed rules. Top holdings include
familiar names like
Taiwan Semiconductor (NYSE:
. Investors will also have exposure to companies like Hon Hai
Precision, the world's largest electronics parts maker -- which
just posted a +50% jump in first quarter sales.
As you might expect, GMF was hit hard during the downturn of 2008,
but the fund posted a powerful gain of +74% in last year's rally.
Its annualized returns during the past three years outpace the
Index by more than 1,500 basis points a year.
Action to Take -->
GMF has outscored 85% of all funds in the Asia/Pacific category
since 2007. And with CAFTA now almost fully implemented, the road
ahead looks even brighter. That promising outlook, combined with
low fees, stellar tax efficiency, reasonable valuations and
top-tier risk/adjusted performance all play a part my giving the
fund a top score for my
Chief Investment Strategist: Market Advisor, The ETF
Disclosure: Neither StreetAuthority, LLC nor the Nathan
Slaughter hold positions in any securities mentioned in this