Invest In Southeast Asia: Emerging Market Strategist

Shutterstock photo

Southeast Asia has emerged as the new Asian tiger at a time when China's economic growth weakens.

While China and emerging markets have sold off this year, Global X FTSE ASEAN 40ETF ( ASEA ) has gained 0.23% year to date and 7.22% in the past year. Its benchmark, iSharesMSCI Emerging Markets Index ( EEM ), is down 4.6% year to date and 1.47% the past year.

IShares FTSE China 25Index Fund ( FXI ) has given up 8.16% year to date and 0.32% in the past 12 months.IShares MSCI EAFE Index ( EFA ), tracking developed foreign markets, added 4.45% and 7.71% over the same periods.

The BRIC countries -- Brazil, Russia, India and China -- draw the most attention, but stock investment opportunities in Southeast Asia are far greater than many realize, Carl Delfeld, managing partner of Boulder Emerging Markets in Denver, said in a speech delivered last week after visiting Hong Kong, Cambodia, Laos and Vietnam.

"It may also surprise you that the 10-member countries of the Association of South East Asian Nations have a combined population of 620 million and a GDP approaching $2 trillion. These members are Brunei, Lao PDR, Cambodia, Indonesia, Thailand, Vietnam, Philippines, Malaysia, Burma and Singapore.

"Their combined economies have grown 170% over the past decade and have about a 6.5% average growth rate. ASEAN is the United States' fourth-largest overseas market and our exports to ASEAN are about the same as our exports to China."

ASEA has 39% of its assets devoted to stocks in Singapore, 27% in Malaysia, 20% in Indonesia, 13% in Thailand and 1% the Philippines.

"(Singapore) is one of only seven countries in the world to enjoy an AAA credit rating. Surprisingly, some firms are moving manufacturing centers from China to high-cost Singapore due to its infrastructure, logistics and laws protecting intellectual property," Delfeld said.

"Singapore is also a good proxy for many investors as its companies invest heavily in neighboring countries. One of Singapore's bluest chips, Keppel, is on the move in Vietnam and Indonesia in property, offshore energy, and shipping."

Malaysia is similar in many ways to Singapore but with lower wage levels and abundant natural resources.

"Rich in natural resources and a natural gas and oil exporter, it offers investors an economic environment of low inflation and debt," Delfeld said. "Although palm oil, tin, petroleum, copper, iron ore and other commodities are an important part of the Malaysian story, it has a well-diversified economy."

Indonesia's stock market, Delfeld's favorite investing destination, has rallied an eye-popping 814% in the past decade vs. China's 120%. Home to the world's fourth-largest population, the island nation is the only G20 member with a downtrending debt-to-GDP ratio. Standard & Poor's has upgraded Indonesian government bonds to "investment grade."

"Indonesia's youthful population represents the planet's fastest growing middle class. A just released report by the Boston Consulting Group estimates its middle class and affluent consumers at 74 million -- and expects this group to double by 2020," Delfeld said. "No wonder America's competitors are all over this region. ASEAN has already begun negotiating a free-trade agreement with Australia, China, India, Japan, South Korea and New Zealand. This pact will affect $17 trillion of trade and will be inked by the end of 2015. The China-ASEAN free trade agreement signed in 2010 has contributed to a significant increase in China-ASEAN trade -- up 55% in 2011 alone."

ASEA sports a rather weak IBD Relative Strength Rating of 43, indicating it's lagged 57% of the market in the past 12 months. But its excellent B+ Accumulation/Distribution Rating on an A-to-E scale shows institutional investors are heavily buying more shares than selling. The ETF is trading above both its 50- and 200-day moving averages, indicative of a strong uptrend.

ETFs investing in individual Southeast Asian countries are iSharesMSCI Malaysia Index ( EWM ), iSharesMSCI Singapore Index (EWS),Market Vectors Indonesia Index (IDX), iSharesMSCI Philippines (EPHE), iSharesMSCI Thailand (THD) andMarket Vectors Vietnam (VNM).

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics