With the markets remaining weak across the globe, investors
favor economies that display a compelling domestic growth rate.
Asia is one such continent with strong growth dynamics in this
jaded economic environment.
Many economies on the continent are currently cushioned by
rapidly growing populations, emerging consumer classes and strong
budget situations. This is in stark contrast to many developed
Western markets which are currently facing the opposite condition
for many of their markets (
Southeast Asia ETF Investing 101
Currently, the region is still expected to deliver a 6% growth
rate in fiscal 2012, at par with the prior-year level, and
impressive considering developed market weakness. Furthermore, some
believe that the region is in the mid-cycle of the slowdown and
that a recovery could be underway by the end of the fiscal
In particular, investment in Asia tends to center around three
nations at this time; China, India, and Japan. Below, we have
highlighted some of the key points for these top markets which
investors need to keep in mind before looking at the space:
Among the major Asian nations, China is considered to be the
fastest growing economy. It also holds the distinction of being the
biggest exporter in the world. In fact, despite the market crisis,
in 2008 and 2009, China has managed to use stimulus effectively to
boost growth back up to the 10% rate in 2010, although it has
scaled back in recent months.
Notwithstanding, the debt crisis in Europe continues to cast its
spell on Chinese exports as Europe is one of the biggest importers
of Chinese goods, accounting for approximately 18% of the nation's
overseas shipments. But once the Euro-zone recovers, China will
again experience a rebound in exports. The economy is expected to
grow at the rate of 8.3% in fiscal 2012.
The Indian economy has grown in leaps and bounds over the past
two decades and is considered as one of the dominant economies with
an attractive GDP growth rate of approximately 7.5%. In the last
decade, foreign ventures and trade, privatization, better industry
policy, and capital market reorganization led to a sharp annual
economic growth of 9.0%.
Even during fiscal 2008, when all the nations in the world were
facing market turmoil, India could deliver growth of 6%. Domestic
consumption has also been rising in the country. India is well
poised to gain investor confidence attributable to its increasing
Impressive investment in the country by Foreign Institutional
Investors along with falling inflation over a period of six months
adds to its positive case. The liquidity has also improved stemming
from the reduction in the cash reserve ratio, twice in a row, by
the Reserve Bank of India. (
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Unlike its rapidly growing counterparts, Japan is stuck in a low
growth quagmire. The country is now approaching its third decade of
near zero growth with little hope in sight for a turnaround.
This has been further compounded by the recent Fukushima
disaster after the March 2011 tsunami. This tragedy devastated
large parts of Japan and the full effects from the crisis are still
being felt to this day in the country.
To top things off, Japan has already reached its peak in terms
of growth since it is a developed economy and its population is
actually shrinking. In fact, some estimates suggest that the
nation's population will shrink by over 25% between now and the
midpoint of the century.
If that wasn't enough, Japan is a disaster from a budget
perspective as well. Although the country does have a current
account surplus, its debt load is impressive, coming in at over
230% of GDP with the national debt is expected to surpass one
quadrillion yen at some point in the very near future (
Japan ETFs: One Year After The Fukushima
Given these realities in the Japanese market, but the promise
that is still in a number of the other major Asian nations, some
could find it beneficial to skew their portfolios away from
For these investors, a closer look at the Asia ex-Japan ETF
space could be a great idea. While this market isn't nearly as big
as the broad Asia emerging market or Asia developed market space,
it is one of the only ways to get exposure to both the
industrialized and developing countries in the continent via a
Below, we highlight the three ETFs that occupy this space. While
they may appear similar at first glance, there are a few
differences that investors should be aware of before taking the
plunge on Asia Ex-Japan ETFs:
iShares MSCI All Country Asia ex Japan Index Fund
Market leader iShares' entrant in the space is marked by the
fund AAXJ, a fund that trades with assets under management of
$2,355.3 million while charging an expense ratio of 67 basis points
a year. Despite the high expense ratio, the fund has been able to
attract a decent level of AUM. (
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In terms of the portfolio, the ETF holds over 630 stocks in its
basket and puts just 20.1% in the top 10 firms. In the top 10
holdings, 5.0% of AUM has been assigned to Samsung Electronics
while Taiwan Semiconductor Manufacturing Co. Ltd. (
) occupies the second position.
In sector exposure, the fund is heavily invested in financials
and information technology with 48.9% of investment. Utilities and
health care, on the other hand, account for a modest 4.6% of the
assets in this fund.
In terms of country exposure, China and South Korea hold the
lion's share making up 44.7% of the total investment, followed by
double digit allocations to Taiwan and Hong Kong as well. (
Korean ETFs In Trouble?
WisdomTree Asia Pacific ex-Japan Fund (
For a dividend-focused approach in the Asia ex-Japan ETF space,
a closer look at AXJL is warranted. The fund tracks the WisdomTree
Asia Pacific ex-Japan Index which looks to focus on 300 large
companies ranked by market capitalization that are incorporated in
various parts of the Asia region.
This produces a fund that pays out a solid dividend yield of
roughly 4.4% a year, a good level considering the geographic focus
of the fund (
). Investors should also note that over $89.7 million is under
management in the fund and the ETF charges an expense ratio of 48
However, the product holds fewer securities than many of its
counterparts at just over 246 in total. The concentration level in
the top 10 holdings is also at 33.4% which suggest that the fund
has just a modest level of diversification.
In terms of sectors, this ETF is also tilted towards financials
with 35.9% of the total, while telecom takes the second spot with
just under 20% of the fund. Meanwhile, on the light side, utilities
and consumer staples together make 6.78% of investment.
The country breakdown comprises Australia taking the top spot
with 24.5% of investment while India is last on the radar with just
2.5% of investment.
MSCI All Country Asia ex Japan Small Cap Index Fund
The newest choice in the small cap Asia-Pacific ETF space is
AXJS from iShares. The product debuted in February and hasn't
really had a chance to build up assets yet. However, the cost could
be prohibitive as it does charge investors 75 basis points a year
The fund manages a $10.4 million asset base and invests the
amount in a large basket of 830 stocks. The concentration level in
the top 10 holdings is currently 4.57% suggesting the fund does a
good job of spreading out its assets among the component firms
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This ETF, also like its counterparts, is weighed towards
financials with 20% of investment while the fund is light on
telecommunication which makes up just 1.3% of the assets.
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ISHARS-MS AS-JP (AAXJ): ETF Research Reports
WISDMTR-AP-JPN (AXJL): ETF Research Reports
ISHARS-M ACAS-J (AXJS): ETF Research Reports
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