Five ETFs For An Asia-Centric World

by on February 23, 2010 | ETFs Mentioned:

Since the economic recovery began, many investors have looked to Asia to drive growth and stimulate global demand. China has grabbed most of the headlines, as tremendous growth in the world’s most populous nation has essentially pulled this emerging market into a tie with Japan as the world’s second-largest economy. In recent weeks, uncertainty over China’s next monetary policy moves caused turmoil in global equity markets, an indication of the influence that the country now holds over the global economy. This economic influence has perhaps translated into increased political clout as well: many global leaders, including president Obama, have been criticized for their reluctance to push China on issues such as human rights and currency devaluation.

While China’s growth has been impressive, recent data releases have shown that Asia isn’t a one-trick pony. Taiwan and Thailand both recently reported their fastest economic growth in recent years, perhaps indicating that China’s surge has begun to ripple throughout Asia, and raising hopes for a prolonged period of broad-based growth in the region.

GDP in Taiwan rose more than 9% in the fourth quarter on a year-over-year basis, more than 3% higher than the consensus estimates from economists. On a seasonally-adjusted, annualized basis, growth was an impressive 18%, according to analysts at Goldman Sachs. Thailand wasn’t far behind, as the economy expanded by 5.8% from the previous year, and grew by more than 15% on an annualized basis. Citing improved outlooks for exports, tourism, and agriculture, the Thai government also boosted its 2010 forecasts.

The impressive results from Taiwan and Thailand come on the heels of positive surprises from the dogs of Asia. Last week, Singapore reported that fourth quarter GDP contracted by 2.8% on an annualized basis in the fourth quarter, far better than economist estimates. Citing strong manufacturing and construction results, the government boosted expectations for 2010 growth to 4.5% to 6.5%, an increase of 150 basis points on both ends of the range relative to previous estimates.

Even Japan, a drag on global stocks since the recovery began, has shown signs of life. Japanese GDP grew by 4.6% in the fourth quarter of 2009, well above estimates of 3.5% expansion. Through the first two months of 2010, Japanese stocks have been among the top performers.

ETFs For The Asia-Centric World

Asia’s advance comes at a time when the Euro zone is facing a potential meltdown and problems, ranging from potential deflation to swelling government debt, continue to mount in the U.S. Many analysts believe the stellar results at the end of 2009 have set the stage for continued growth in Asia. “If sustained, increased employment and private-sector business investment could propel Asian growth,” writes Alex Frangos. “Companies are making money again, boosting investment, and consumers are more confident, as job security returns.”

Asia’s path to global economic dominance is by no means an easy one. The Chinese economy has overheated before, and some worry that surging property values indicate that another bubble has already formed. Inflation has begun to rear its head in parts of the region, while deflation has proven to be a persistent thorn in the side of Japan’s economy. And in a world where the concept of decoupling seems to be dead, no economy is completely insulated from troubles in other parts of the world. But the prospects for the region as a whole are undeniably bright.

As investors begin to rethink the traditional wisdom that calls for significant allocations to the U.S. and western Europe, the weighting given to Asia seems likely to increase significantly. Below, we profile five ETF options for investors looking to boost their Asia exposure (for more actionable ETF investment ideas, sign up for our free ETF newsletter):

  • iShares MSCI Thailand Investable Market Index Fund (THD): This ETF is designed to offer exposure to Thailand’s equity markets, and offers impressive depth with about 85 holdings. THD is dominated by holdings in the financials and energy sectors, which make up almost 70% of the fund in aggregate.
  • iShares MSCI Taiwan Index Fund (EWT): This ETF focuses on equity markets in Taiwan, a market classified as “developed” by certain sources and still “emerging” by others. Taiwan is one of the world’s rising technology centers, and the composition of EWT reflects this tilt: more than 60% of the fund is allocated to the tech sector.
  • iShares MSCI Singapore Index Fund (EWS): Singapore is one of Asia’s financial centers, so it isn’t surprising that financials account for about half of the Singapore ETF. EWS consists of about 30 holdings and has gained nearly 90% over the last year.
  • iShares MSCI All Country Asia ex-Japan Index Fund (AAXJ): For investors seeking diversified exposure to Asia while avoiding Japan, AAXJ is one of the best options. In addition to big weightings to Hong Kong, South Korea, and China, AAXJ gives moderate allocations to Taiwan, India, Singapore, Indonesia, Thailand, and the Philippines.
  • SPDR S&P Emerging Asia Pacific ETF (GMF): This ETF is similar to AAXJ, but concentrates exposure on emerging markets (meaning no exposure to South Korea). GMF has more than 200 holdings and charges an expense ratio of 0.59%.

See complete lists of Asia ETF options in our China Equities, Japan Equities, and Asia Pacific Equities ETFdb Categories.

Disclosure: No positions at time of writing.