Global X rolled out the latest addition to its rapidly-expanding ETF lineup on Thursday, launching the FTSE ASEAN 40 ETF (ASEA). The new fund seeks to replicate the FTSE/ASEAN 40 Index, a benchmark that is made up of the largest companies in the original five ASEAN countries: Indonesia, Philippines, Singapore, Malaysia, and Thailand. ASEA is the first U.S.-listed ETF to offer exposure to these five economies, though there are “pure play” options for investing in each of the ASEAN member countries individually.
The five member countries include some of the fastest-growing emerging markets, thriving thanks to low labor costs, strong relationships with China, and a wave of economic liberalizations that have encouraged foreign investment. Also included is one of the wealthiest countries in the world, a model for economic development in Asia. “We are pleased to provide access to the ASEAN market for US investors,” said Bruno del Ama, CEO of Global X Funds. “This is one of the most dynamic regions in the world with accelerating consumer demand that should develop a middle class of about 300 million people by 2015.”
Unlike the BRIC, a term coined by a Goldman Sachs employee, the ASEAN members share some similarities in terms of geography and demographics–though not necessarily level of economic development. The Association of Southeast Asian Nations was formed in 1967 when the leaders of the five countries joined forces in an effort to promote economic coordination and regional free trade. The focus of the group has evolved over the years, and the membership base has changed as well. Brunei, Burma/Myanmar, Cambodia, Laos, and Vietnam have since joined the bloc, though those countries aren’t represented in the index underlying ASEA (exposure to Vietnam is available through VNM; options for exposure to the other markets is limited).
Economic coordination has materialized in the form of a surge in M&A activity in the ASEAN region, and there are more plans to enhance cooperation on tap. There is a planned cross-border trading platform slated for 2011, which includes the stock exchanges in Singapore, Malaysia, Thailand and the Philippines.
Another Emerging Market Option
Recent innovation in the ETF industry has provided investors with new options for establishing exposure to emerging markets. While most investors achieve the majority of their exposure to developing economies through large cap companies domiciled or operating in one of the BRIC countries, funds offering exposure to small caps (EWX), frontier markets (FRN), Africa (AFK) and the Andean countries of South America (AND) have also been embraced.
|As of 1/31/2011|
Investors who achieve exposure to emerging markets through a broad-based fund such as VWO are likely light on the ASEAN countries. The popular Vanguard fund, the largest in the Emerging Markets ETFdb Category, allocates only about 7% of assets to the countries. As such, ASEA could have appeal to investors looking to diversify their emerging markets exposure beyond the BRIC bloc and the quasi-developed nations of South Korea and Taiwan (in aggregate, these six economies make up about 75% of VWO). It should be noted that Singapore is home to an advanced economy, and is in fact one of the wealthiest countries in the world (more on this below).
In terms of economic development and potential, Singapore is the odd man out of the group. The city state’s population is considerably smaller than the rest of the group, and is equal to only about 2% of Indonesia. Singapore is also one of the richest countries in the world, with per capita GDP higher than the U.S. and nearly twice the per capita GDP of the other four ASEAN members combined [see Can Anything Stop The Singapore ETF?].
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Under The Hood
As the name suggests, ASEA has about 40 individual holdings spread across the five component countries. Not surprisingly, Singapore makes up a big chunk of the portfolio, accounting for about 41% of assets. Malaysia accounts for another 33%, followed by Indonesia and Thailand. The Philippines makes up less than 1% of ASEA.
From a sector perspective, ASEA is tilted heavily towards financials–a common bias among large cap international equity products. Banks and financial services companies make up a little more than 40% of assets, with telecom (16%), industrials (15%), and consumer discretionary (11%) also making up material chunks of assets. The largest individual holdings include DBS Group Holdings, Singapore Telecom, and Oversea-Chinese Banking.
Disclosure: No positions at time of writing.