China and India have both been great places to invest in over the past couple years.
After all, China is growing at double-digit rates and India is attracting new technology companies at a rapid pace. However, many investors forget they are not the only countries in Asia with a booming stock market.
I would argue that it is time for investors to think outside the box and look at smaller counties in Southeast Asia such as Thailand, Malaysia, Singapore, Indonesia, Vietnam and the Philippines. Granted, the risk could be considered higher in the smaller countries, due to less stable governments and securities laws that are not up to the standards of the U.S. That said, China and India were once at the same stage in development and investors in both countries have done very well for themselves.
The attractiveness of the region has to do with the proximity to the large emerging countries such as India and China. The demand for commodities and goods leads the big two to their smaller neighbors, where they may find cheaper goods and labor. Each country has unique risks and reward potentials that will be covered below.
Singapore and Malaysia
Singapore and Malaysia are not only connected by a bridge, but also their stock market performance. Over the last few years, the two exchange-traded funds (ETFs) that track the countries have moved higher together, with Singapore emerging as the winner. From 2004 through September 26, 2007 the iShares Singapore ETF (NYSE:EWS) has gained 153% and the iShares Malaysia ETF (NYSE:EWM) is up 95%. In 2007, the two ETFs are up approximately 30% and have been trading in a very similar uptrend.
Singapore is the smallest country in Southeast Asia, but do not hold that against it. The country has been a magnet for large money around the globe and is building new casino resorts to increase its attractiveness. Singapore is the busiest port in the world in terms of tonnage, is the world's fourth largest foreign exchange trading center, and was voted the most business-friendly economy in the world. As long as a global recession does not occur, Singapore should continue to experience solid growth.
Thailand a Riskier Play
Thailand may seem like a solid choice for investors looking to Southeast Asia and the performance has been nothing to ignore. However, there is heightened political risk when investing in Thailand due to its unstable political situation. There was a coup in 2006 and earlier this year the country had issues with an election and finally, who could forget the 1997 Thai currency crisis. That said, its GDP is expected to be somewhere in the 4% range this year and the closed-end fund that invests in Thailand, Thai Fund (NYSE:TTF), is up 26% year-to-date.
Indonesia: More than Oil
If we fly south, we will run into the fourth most populous country in the world, Indonesia. Interestingly, Indonesia is the only member of OPEC from Southeast Asia and its major industries include commodities, textiles, and apparel. The Indonesia Fund (NYSE:IF) is a closed-end fund that offers investors a basket of Indonesian stocks. The fund has not done as well as its counterparts in 2007, but it has been in a consistent uptrend for years. Its top holding, PT Telekom Indonesia (NYSE:TLK), is a telecom company that trades here in the U.S. on the New York Stock Exchange.
Last, but not Least
There are two other Southeastern nations that have garnered attention recently, the Philippines and Vietnam. Neither country has an ETF or fund that tracks it specifically; therefore, they are not viable investment options for most investors. Of the two, I would suggest keeping an eye on Vietnam in the coming year. One option for investors who feel they must have exposure to the Philippines is Philippine Long Distance (NYSE:PHI). The stock recently hit a new all-time high and has joined a host of emerging-market telecom stocks breaking out.
Whether or not you decide to go forward and put cash in to one or many of these interesting Southeast Asian investment areas, be sure to keep an eye on the progress over the next few years.
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