ASEAN or Association of South East Asian Countries was formed in 1967 primarily by Singapore, Malaysia, Philippines, Indonesia & Thailand, also known as the founding members.
Now, of course nations of Laos, Brunei, Cambodia, Myanmar & Vietnam are also a part of it. This piece though will focus on the investments in South East Asian ETFs centric on the equities listed in the exchanges of founding member countries.
It has been a trend for quite some time for US investors, to invest in South East Asia through equities, ETFs etc.
and for the right reasons. The region boasts of some of the fastest growing economies of the world. The middle class & its incomes have increased and continuing to grow like never before in this Asian region. Naturally, these developments have meant some handsome returns for the investors from US & otherwise.
Inside ASEAN
Singapore is the biggest economy of ASEAN bloc & the only developed economy in this group. Being among one of the richest countries in the world, The Per Capita GDP of Singapore is almost five times more than any other South Eastern nation & even higher than USA.
It is amusing that with 5 million citizens, the population of Singapore is only a miniscule percentage of a total 420 million people living in these five countries, but with a US$ 57,238 of Per Capita GDP, it accounts to more than half of the combined Per Capita GDP [US$ 99 Million] of this bloc.
This fact is however by no means an actual mirror of the development that is happening in this region. The Indonesia & Malaysia alone have shown a steady economic growth at 7% & 5% respectively. The enhanced M& A activities in the Corporate Sector, good business understanding with China & liberal trade agreements with the European Union Countries & South Korea have resulted in a huge surge of Foreign Investments in the equity markets & the results are clearly reflected through the returns that the South East Asian ETFs have given in recent times.
The IDX an Indonesia based fund has seen a cash influx of + US $ 500 million since its launch in 2009 & Global X South East Asia Fund [ASEA] has given a good Y-o-Y return.
Investing in South East Asian Region
Industry estimates that by 2015 the total middle class population will reach 300 million in this region. This means a huge consumer market & heavy profits for the players involved.
In terms of Capital Markets, the cheap valuation of the South East Asian stocks & especially ETF funds is another major attraction. For Debt instruments also the yields in ASEAN countries are higher as their Credit ratings are below than most of the established & developed economies.
For an American investor betting his money on South East Asian fund empowers him to smartly diversify his portfolio, as these countries enjoy a capsule like immunity to the economic disturbances in the American & other Western equity markets and given an economic stagnation that is now seen in BRIC countries & a slower recovery in US markets, chances of wealth creation are higher in a South East Asian ETF.
The liquidity options & the simple trading procedures normally associated with an ETF vehicle are a plus too.
Although one cannot ignore the risks of the Geopolitical nature & Currency Issues are there too, but not something that cannot be handled through a systematic investment plan. The other worries though can be associated with the fact that almost all of the South East Asian Equity Traded Funds have a heavy allocation in Singapore.
ASEA, the Global X fund focussing on the region has a close to 41% of its investments in Singapore & more than 70% in Singapore & Malaysia together and like other similar funds majority weightage is on the Financial Sector. Thereby, exposing investors to risks based on country wise or Industry wise dependencies.
A good way to tackle this would be a sound professional advice at the time of investing & preferably multiple entries with smaller amounts.