Europe's debt woes and resulting austerity plans coupled with the United States' congressional inaction have finally begun to take their toll on the global economy. The chances of a global recession have now increased and analysts have begun the task of downgrading their gross domestic product (GDP) estimates for a variety of nations. Overall, analysts now peg global GDP growth to fall to around 2.5%, with some areas like Europe experiencing negative economic growth. However, one rating agency's recent downgrade of an entire region could be exactly the catalyst investors need to add these nations to a portfolio. (For additional reading, check out Should You Invest In Emerging Markets.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Slowing Growth, Long Term Potential
The slow downs in the developed West have caused Fitch to begin downgrading emerging Asia. On the whole, the research group estimates that emerging Asia will expand by 6.8% in 2012, less than its June forecast of 7.4%. Fitch highlights slowing industrial production in key exporting nations like Taiwan or Singapore and rising wholesale inflation as the reason for the downgrades. In their report, Fitch increased its 2012 inflation forecast for the region to 4.9% up from 4.7%.

However, for contrarian investors the recent downgrade could be a blessing and an opportunity. The recent slowing growth predictions have caused a huge drop in Asian asset prices. Broad measures like the SPDR S&P Emerging Asia Pacific (ARCA:GMF) now sit closer to their 52-week lows and trade for single digit forward price to earnings (P/E). However, the long-term growth story of the region hasn't changed. A burgeoning middle class, increasing incomes and growing domestic consumption are hallmarks of the region. These strong internal growth catalysts will help propel the region forward as their developed market counterparts struggle with high unemployment, dwindling consumer spending and impending tax uncertainty. Even as Fitch was downgrading the region's growth, in its report it called emerging Asia's growth prospects relatively "favorable." In addition, the agency highlighted the continent's improving public finances, infrastructure spending and lower commodity prices as the key drivers for growth.

The Best Ways to Play
Given Fitch's recent downgrade of emerging Asia, those contrarian investors may want to use the recent weakness to add the region to a portfolio. Broad-based funds like the iShares S&P Asia 50 Index (ARCA:AIA) or Global X FTSE ASEAN 40 ETF (ARCA:ASEA) make ideal ways to add the entire region to a portfolio. However, some individual nations currently offer some unique risk/reward potential. Here are some picks.

After suffering through high inflationary pressures over the last few years, Vietnam saw these pressures dip for the fourth month in December. The nation is benefiting from rising wages in China as manufacturers begin to shift production to lower cost producers. The growth of Chinese "off-shoring" coupled with the nations incredibly young population make it an interesting frontier play in Asia. The Market Vectors Vietnam ETF (ARCA:VNM) is currently the only way to gain access to the region.

Both Taiwan and Singapore have seen industrial production dip over the last few months. However, Taiwan remains one of the world's biggest high tech manufacturers and Singapore continues to be Asia's financial powerhouse. Both the iShares MSCI Singapore Index (ARCA:EWS) and iShares MSCI Taiwan Index (ARCA:EWT) offer a way to play their continued dominance in those areas.

Finally, for investors looking for active management at a discount, the Templeton Dragon Fund (NYSE:TDF) is helmed by emerging market guru Mark Mobius and currently trades at a 11% discount to net asset value. Top holdings include Taiwan Semiconductor Manufacturing (NYSE:TSM) and Yanzhou Coal Mining (NYSE:YZC).

The Bottom Line
As the world economic growth begins to slow, some opportunities have risen for longer focused investors. Fitch's recent downgrade of emerging Asia is one such opportunity. With the long-term picture still in place, investors can use a drop in asset prices to load up on the nations in the region. (For more, read The Risks Of Investing In Emerging Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing

    2 Common Ways to Misuse Target Date Funds

    The world of asset classes is just as complicated as taking vitamins. How much should you take of small caps? Intermediate bonds? Emerging market stocks?
  2. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  3. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  4. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  5. Mutual Funds & ETFs

    What Target-Date Funds Can Teach About Investing

    Target-date funds are a popular way to invest for retirement. Here's what they can teach the novice investor.
  6. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  7. Mutual Funds & ETFs

    4 Mutual Funds Warren Buffet Would Buy

    Learn about four mutual funds Warren Buffett would invest and recommend to his trustee, and discover detailed analysis of these mutual funds.
  8. Mutual Funds & ETFs

    Passively Managed Vs. Actively Managed Mutual Funds: Which is Better?

    Learn about the differences between actively and passively managed mutual funds, and for which types of investors each management style is best suited.
  9. Professionals

    How to Navigate Taxable Mutual Fund Distributions

    It's almost time for year-end capital gains distributions for mutual funds. Here's how to monitor them and minimize their tax impact.
  10. Investing Basics

    Top Tips for Diversifying with Exotic Currencies

    Is there an opportunity in exotic currencies right now, or are you safer sticking to the major ones?
  1. Can mutual funds only hold stocks?

    There are some types of mutual funds, called stock funds or equity funds, which hold only stocks. However, there are a number ... Read Full Answer >>
  2. How do mutual funds compound interest?

    The magic of compound interest can be summed up as the concept of interest making interest. On the other hand, simple interest ... Read Full Answer >>
  3. Do mutual funds pay interest?

    Some mutual funds pay interest, though it depends on the types of assets held in the funds' portfolios. Specifically, bond ... Read Full Answer >>
  4. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
  5. Do mutual funds pay dividends?

    Depending on the specific assets in its portfolio, a mutual fund may generate income for shareholders in the form of capital ... Read Full Answer >>
  6. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!