The Association of Southeast Asian Nations, or ASEAN, is more
than just another catchy investment acronym. ASEAN encompasses an
alluring mix of 10 nations including one developed market
(Singapore), several familiar emerging economies, a frontier
market and some markets that are downright hard for U.S.
investors to access.
The 10 ASEAN member states are as follows: Brunei, Cambodia,
Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore,
Thailand and Vietnam. Some ASEAN constituents have already found
their way into other well-known acronyms. For example, Indonesia
and Vietnam are members of CIVETS while the Philippines and
have found a home in the underrated CAPPT
At is core, the ASEAN region is the epitome of a profit/peril
conundrum. Even amid a slowing global economy, the ASEAN member
states offer some of the best GDP growth rates in the world. The
downside is several of these countries are next to impossible for
U.S. investors to gain direct exposure to or are home to red
flags such as corruption and under-developed banking and legal
The rewards are there to be had with ASEAN, but use this guide
to invest in the region the right way.
Global X FTSE ASEAN 40 ETF (NYSE:
Now 26-months-old, the Global X FTSE ASEAN 40 ETF remains an
under-appreciated ETF. Not only is it one of the few noteworthy
multi-country ETFs tracking Asian nations that does not feature
exposure to China, Taiwan or South Korea, the fund is the only
ETF devoted exclusively to ASEAN member states.
That said, ASEA is a play on just five ASEAN countries -
Singapore, Malaysia, Indonesia, Thailand and the Philippines, but
the fund's weight to the Philippines is less than one percent.
ASEA tempers its emerging markets flare with a 37.2 percent
weight to Singapore, a developed market. One critique: It would
be nice to see ASEA raise its allocations to Thailand and the
Philippines, which combine for just over 12 percent of the fund's
iShares MSCI Singapore Index Fund (NYSE:
As one of the few developed markets in a region littered with
emerging economies, Singapore is often viewed as the beacon of
stability in the ASEAN lineup. EWS features an allocation of 47
percent to financials, which might scare off some investors in
this market environment. However, Singapore is one of the
financial centers of the world.
The city-state not only receives more financial foreign
investment than any other major financial center in the world, it
receives more than New York, London, Frankfurt and
according to AlphaVN.com
That is a telling anecdote and one that underscores the notion
that Singapore is a viable developed market alternative to the
U.S. and Europe. Also consider the Shares MSCI Singapore Small
Cap Index Fund (NYSE:
), which debuted in January.
Market Vectors Indonesia ETF (NYSE:
For all of 2012, Indonesia has been an emerging markets
laggard and that much is highlighted by the fact that IDX, the
largest of three Indonesia ETFs, is down nearly 3.7 percent
year-to-date while the Vanguard MSCI Emerging Markets ETF (NYSE:
) is higher by 4.6 percent.
That glum performance aside, IDX has been one of the best
performing ETFs since the March 2009 market bottom and it pays to
remember that Indonesia is Southeast Asia's largest economy.
Indonesia's economy grew at 6.3 percent in the first quarter.
While that may be the country's most sluggish pace in six
quarters, foreign direct investment surged 30 percent,
Investors have a tendency to forget that Indonesia is a young
democracy and that it is still moving toward enhanced
transparency and increased adaptation of free market ideals. The
long-term outlook is strong. Also consider the iShares MSCI
Indonesia Investable Market Index Fund (NYSE:
) and the newly minted Market Vectors Indonesia Small-Cap ETF
iShares MSCI Malaysia Index Fund (NYSE:
The iShares MSCI Malaysia Index Fund has not been as exciting as
some other ETFs tracking ASEAN nations, but it has also
outperformed IDX as well as the major ETFs tracking non-ASEAN
nations such as China, South Korea and Taiwan.
Driven by strong domestic demand,
Malaysia expects solid GDP growth in the second half of this
and it is worth noting country is a marginal oil exporter. It is
also worth noting that
Malaysia has been the top IPO destination in Asia
That trend probably will not last year, but it does highlight
the strength in Malaysian equities relative to larger Asian
markets this year.
iShares MSCI Philippines Investable Market Index Fund
The iShares MSCI Philippines Investable Market Index Fund was
one of the top-performing non-leveraged ETFs in
the first half of the year
. That is not surprising for those investors that have been savvy
enough to get acquainted with the Philippines over the past
EPHE trades at a premium to the broader emerging markets
universe, but the fund is worthy of a valuation that some may
consider lofty. There are real catalysts that make EPHE and the
Philippines worth embracing. A current debt-to-GDP ratio of
around 50%. Controlled inflation relative to many other emerging
markets. Of course, there is the World Bank GDP growth forecast
of 4.2% this year and 5% in 2013.
Investors also cannot ignore the fact that
that Philippines improving economic and political
put the country in prime position for an upgrade to its sovereign
The Philippines also provides an indirect way for investors to
gain exposure, albeit small for the moment, to Cambodia. For
long-term investors, the good news/bad news scenario is that the
Philippines is still heavily impoverished with one of the lowest
per capita GDP ratios in the world. That is bad news on the
surface, but the statistic also implies that with the benefit of
a sound fiscal situation, the Philippine government can invest in
avenues to reduce poverty.
iShares MSCI Thailand Investable Market Index Fund (NYSE:
THD has been one of the best-performing ETFs since the March 2009
market bottom and despite some political issues of its own in
2010, Thailand is now one of the more politically stable
countries in Southeast Asia. The country shares borders with
Cambodia and Myanmar, meaning investors can grab some access
(again, small and indirect) to those markets.
Broadly speaking, there is a lot to like with Thailand,
Southeast Asia's second-largest economy behind Indonesia. GDP
is expected to be in the neighborhood of 5.2
percent to 6.2 percent this year
and inflation is tolerable.
However, there is a bear case regarding Thailand. A senior
economist at the Thailand Development Research Institute said on
Monday the populist policies of the Pheu Thai Party could set
Thailand on a
to a Greece-like collapse in "no less than 10
That is a bold proclamation and one that may be colored by the
economist possibly supporting ousted premier Thaksin Shinawatra's
Thai Rak Thai party. For now, Thailand looks nothing like Greece,
but despite a solid economic track record as of late and immense
potential going forward, Thailand does need to address rising
unemployment among its young people.
Market Vectors Vietnam ETF (NYSE:
The Market Vectors Vietnam ETF was one of the best-performing
non-leveraged ETFs during the first quarter, but the fund gave
back some of the gains with a 5.8 percent second-quarter decline.
That performance speaks to the fact Vietnam is a frontier market,
implying risk here is higher than with a traditional emerging
VNM's recent woes also underscore slowing economic growth at
the hand's slack bank lending, the byproduct of woefully high
inflation seen in recent years. Still, Vietnam's economy grew 4.7
percent in the second quarter and inflation has been tamed to the
point where the central bank has lowered the refinancing and
discount rates in an effort to spur bolster domestic growth.
The bull case for VNM and exists in the form of
compelling valuations for Vietnamese equities
and the expectation that those stocks will surge through
Vietnam is a small equity market with a total market
capitalization of around $40 billion. Vietnamese banks are
flush with excess cash and foreign direct
investment has ample room to grow
, indicating VNM's best days may be forthcoming.
Investors should note there are other multi-country ETFs on
the market that offer exposure to some ASEAN nations. Those funds
include the EGShares Low Volatility Emerging Markets Dividend ETF
), the WisdomTree Emerging Markets SmallCap Dividend Fund (NYSE:
), the WisdomTree Emerging Markets Equity Income Fund (NYSE:
), the EGShares Industrials GEMS ETF (NYSE:
), the SPDR S&P Small Cap Emerging Asia Pacific ETF (NYSE:
), the SPDR S&P Emerging Asia Pacific ETF (NYSE:
), the iShares Emerging Markets Dividend Index Fund (NYSE:
) and the iShares MSCI Emerging Markets Minimum Volatility Index
), among others.
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