The investment thesis for Asia has certainly evolved over the years. There was a time when Japan was a hotspot for foreign investors. Granted, that was a long time ago, and while Japan is still the world's second-largest economy, the Japanese economy is littered with problems that make investing there perilous. Fast forward to 21st century and China and to a less extent, India, have dominated the investment scene in Asia.
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China's growth story is simply sensational and the world's largest country posts 8%+ GDP growth rates on a regular basis. India is a compelling investment opportunity because it is the world's largest democracy. These anecdotes illustrate the power of investing in Asia, but there is more on this continent than just the heavy hitters.
The so-called "Asian Tigers," countries like Singapore, South Korea and Malaysia have rapidly growing economies of their own, but many North American investors don't know how to access these potentially explosive markets. Don't worry - we've got three ETFs to help you get started.
|iShares MSCI South Korea Index (NYSE:EWY)||Assets: $2.87 billion||Expense Ratio: 0.63%|
|iShares MSCI Singapore Index (NYSE:EWS)||Assets: $1.37 billion||Expense Ratio: 0.52%|
|iShares MSCI Malaysia Index (NYSE:EWM)||Assets: $544 million||Expense Ratio: 0.52%|
Technology Drives This Economy
South Korea is an economy dependent on exporting products like DVD players, cell phones and televisions, and the U.S. is a big end market for many South Korean goods. Many U.S. consumers are familiar with or own products made by Samsung, LG and other South Korean firms. South Korea's GDP soared by 2.9% in the third quarter and some estimates show the economy may grow by 7.5% in the fourth quarter.
Add in a trade surplus of $3.79 billion in October, and it is clear the South Korean economy is chugging along at a fine pace. And that makes the iShares MSCI South Korea Index worth a look. The ETF holds familiar names such as Samsung, Hynix Semiconductor and steelmaker Posco (NYSE:PKX). The top 10 holdings account for nearly half of the ETFs total exposure, which is a bit on the high side, and four sectors (hardware, financial services, industrial materials and consumer goods) account for the bulk of EWY's sector exposure.
Still, with a dearth of South Korean ADRs trading on U.S. exchanges, EWY is probably the best way for investors to access the South Korean economy.
Rising Forecasts In Singapore
The International Monetary Fund (IMF) recently boosted its 2009 and 2010 GDP forecasts for Singapore to a contraction of 1.7% in 2009 and growth of 4.3% in 2010. Previous estimates called for Singapore's GDP to shrink by 3.3% this year and grow 4.1% in 2010. The island nation is another export-driven economy with consumer electronics, information technology and pharmaceuticals leading the way and that indicates Singapore is far from an emerging market.
Pickings are slim when it comes to Singapore offerings on U.S. exchanges and that makes the iShares MSCI Singapore Index especially useful for U.S. investors. The ETF's top 10 holdings account for more than 71% of total assets and financial services dominate the sector mix with nearly 50% of the total. That's not the diversity we'd typically look for, but EWS trades for just 15-times the earnings of its holdings and is up nearly 54% year-to-date.
More Rapid Growth In Malaysia
Malaysia certainly has some lofty aspirations when it comes to GDP growth as the country is aiming for 6% annual GDP until 2020. Those type of numbers might be enough to even rival China and while it remains to be seen if Malaysia can deliver on those numbers, it is promising to see the country aim high.
Malaysia's economy is experiencing of renaissance of sorts, moving away from a dependence on raw materials, Malaysia has established a footprint in technology, medical science and pharmaceuticals. The country is also an oil and gas exporter, putting it in position to benefit from higher energy prices.
There aren't many Malaysian ADRs available to U.S. investors, so the best way to access to this market is through the iShares MSCI Malaysia Index. EWM's 10 holdings account for nearly 57% of the ETF's total assets and financial services lead the sector mix at 30%. Energy names aren't as well-represented as one might expect, but industrial materials names and consumer goods issues also make up significant portions of EWM. The ETF has been another solid performer, up almost 50% year-to-date.
The Bottom Line: Use ETFs to Harness Asian Growth
If you're looking to get some Asian exposure for your portfolio beyond China and India, these ETFs are a great starting point. The proof is in the pudding and if the growth forecasts for the nations highlighted here hold up, investors could be enjoying some very nice returns. (For a comparison of ETFs and Index Funds see our article ETFs Vs. Index Funds: Quantifying The Differences.)
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