How to Bet on Asia in 2014

ETF Trends

If the size is going to rise again, it probably will not happen in Asia next year. At least that is the sentiment of some global investors that advise betting on North Asian economies and maybe even India over Southeast Asian nations in 2014.

A significant part of the Asian investment thesis for 2014 continues to revolve around Japan, the world’s third-largest economy. Due to the slumping yen and emerging signs Japan is starting to win a multi-decade long battle with deflation, the WisdomTree Japan Hedged Equity Fund (DXJ) has been one of this year’s best ETFs both in terms of performance and asset-gathering proficiency. The db X-trackers MSCI Japan Hedged Equity Fund (DBJP) has impressed as well with gain of over 41%. [Global Investing Ideas for 2014]

Although 2013 will go down as a year of “Japan ex-Asia,” strategists see opportunities in 2014 for some of the continent’s steadier emerging hands.

“Markets in Korea, Taiwan, China, Hong Kong will do well because they are most leveraged to global growth and key beneficiaries of rising consumption in the U.S., as well as in a Europe finally emerging from recession,” reports Assif Shameen for Barron’s.

China has recently drawn praise for political and economic reforms as well as being home to some of the lowest equity valuations in the emerging world. Morgan Stanley and Goldman Sachs recently upgraded their outlooks on China, but Deutsche Bank and J.P. Morgan are among those that are not overly bullish on the world’s second-largest economy heading into 2014. [Lowered Outlook Weighs on China ETFs]

While some observers argue (and some index providers agree) that South Korea and Taiwan are no longer emerging markets, the two are among the steadier, less volatile Asian plays. Over the past three months, the iShares MSCI Taiwan ETF (EWT) and the iShares MSCI South Korea Capped ETF (EWY) have traded higher as investors have embraced, strong currency account surplus stories in the developing world.

Ajay Kapur, Asia strategist for Bank of America Merrill Lynch likes China’s banks, Japanese and Chinese telcos, Chinese property stocks and Korean semiconductor players, Barron’s reported.

The new SPDR MSCI EM Beyond BRIC ETF (EMBB) is an option to consider for investors looking for ample exposure to South Korea and Taiwan via a diversified emerging markets ETF.

Traditional diversified emerging markets ETFs usually have large allocations to Chinese and sagging Brazilian companies, but EMBB excludes the BRIC quartet while featuring a combined 30.5% weight to South Korea and Taiwan. EMBB debuted on Dec. 4 and has $6 million in assets under management.

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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