ETFs for Cruising Asian Economies

Jonathan Bernstein, Contributing Editor
October 17, 2010

Asia is home to the world's fastest growing economies. Investors can get exposure to Asia's growth by investing in ETFs tracking Asian markets. There are a variety of ETFs for tracking Asia, from country-specific funds to pan-Asian funds to specialized sub-sector funds.Asian economies are traditionally thought of as dependent on Western consumption for growth. This is changing. The world-wide economic crisis did not stop growth in Asia. Government stimulus helped Asian countries through the worst initially. Asian domestic private consumption is now growing enough to offset withdrawal of government stimulus. It may soon grow enough to offset slackening demand from the West.The chart below compares the 5-year return of the iShares MSCI FTSE/Xinhua China 25 Index (NYSEArca:FXI - News) with iShares MSCI Hong Kong Index Fund (NYSEArca:EWH - News), the iShares MSCI Malaysia Index (NYSEArca:EWM - News) and the U.S. domestic benchmark Standard and Poor Depositary Receipts (NYSEArca:SPY - News). The three Asian ETFs in the chart above show the long-term performance of the Asian phenomenon. EWH holds major companies based in Hong Kong, part of the New Industrialized Asia. EWM hold companies in Malaysia, part of the ASEAN (Association for South East Asia Nations) block. FXI holds Chinese companies. The chart shows the long-term outperformance of ETFs across Asia when compared to the U.S. domestic benchmark SPY.The chart shows all four ETFs bottoming out in 2009. It shows the three Asian ETFs rebounded much further and faster off the bottom. The is performance reflects that Asia, rather than the West, is leading the way out of recession. Unless the economic straits of the U.S. and West improves, the shift taking place in global economic leadership may lead to political risk for investors in Asian ETFs.Just how strong are the Asian economies? An October, 2010, IMF Survey shows the following percentage GDP growth projections for Asia as compared to Brazil and developed economies in the U.S. and Europe:

View photos
2009 2010 (projected) 2011 (projected)
NIE (Korea, Hong Kong, Taiwan, Singapore) -0.9% 7.8% 4.5%
ASEAN (Indonesia, Malaysia, Philippines, Thailand, Vietnam) 1.7% 6.6% 5.4%
China 9.1% 10.5% 9.6%
India 5.7% 9.7% 8.4%
Japan -5.2% 2.8% 1.5%
Brazil -0.2% 7.5% 4.1%
Euro Area -4.1% 1.7% 1.5%
United States -2.6% 2.6% 2.3%

The table tells an increasingly familiar story. Developed economies like the U.S., Europe, and Japan are growing little, if at all. Meanwhile, in 2009, the worst year of the crisis, China's GDP grew almost 10%. It is projected to maintain this level. India is a powerhouse, growing at China's pace and with less political risk than China. Emerging economies in Asia are cruising comfortably.The table shows that IMFs projects slower growth for 2011 for most of Asia. This may be interpreted different ways, depending on the region. It is not such good news for the NIEs. But for China, where a big concern is always overheating and managing the country's furious growth, this looks like a Goldilocks scenario.Investors looking for more broad exposure can pick from one of the pan-Asian ETFs. The chart below compares the performance of a pan-Asian ETF the iShares MSCI Pacific Ex-Japan (PCX:EPP - News) with the SPY. As the chart shows, the pan Asian EPP has outperformed the domestic SPY over the last few years. Since its inception in 2002, EPP is up 200%. The SPY is stagnant. EPP has a China, Australia, New Zealand focus. Its largest holding is Australian mining concern BHP Billiton. It has holdings in National Australia Bank and Australia and New Zealand Bank.EPP is less helpful for investors looking for substantial exposure to the ASEAN and NIE economies. There is currently no single ETF focused specifically on the NIEs. There is no ETF built to track ASEAN economies either. New ETFs are sorely needed for these regions.Over the last 12 months, the ASEAN economies have been the best place in Asia for investors. Their resilience coming out of the recession has been a surprise. The chart below shows the YTD returns of FXI, the iShares MSCI Singapore Index (NYSEArca:EWS - News), and iShares MSCI Thailand Investable Market Index (NYSEArca:THD - News). Not every South East Asian economy has done as well as Thailand recently. Indonesia over this period is close, up around 40%. The Philippines market has returned better than 30%. Vietnam has lagged.A list of key Asian ETFs appears below:Multiple country ETFs:Vanguard Pacific Stock ETF (NYSEArca:VPL - News)iShares MSCI Pacific ex-Japan Index Fund (NYSEArca:EPP - News)iShares S&P Asia 50 Index (NYSEArca:AIA - News)SPDR S&P Emerging Asia Pacific ETF (NYSEArca:GMF - News)First Trust ISE Chindia Index Fund (NYSEArca:FNI - News)FTSE RAFI Asia Pacific ex-Japan Portfolio ETF (NYSEArca:PAF - News)Single Country ETFs:iShares FTSE/Xinhua China 25 Index Fund (NYSEArca:FXI - News)Powershares Golden Dragon Halter USX China Portfolio ETF (NYSEArca:PGJ - News)Market Vectors China ETF (NYSEArca:PEK - News)Claymore AlphaShares China Small Cap (NYSEArca:HAO - News)SPDR S&P China ETF (NYSEArca:GXC - News)iShares MSCI Hong Kong Index Fund (PCX:EWH - News)iShares MSCI Japan Index Fund (NYSEArca:EWJ - News)iShares MSCI Malaysia Index Fund (NYSEArca:EWM - News)iShares MSCI Singapore Index Fund (NYSEArca:EWS - News)iShares MSCI South Korea Index Fund (NYSEArca:EWY - News)iShares MSCI Taiwan Index Fund (NYSEArca:EWT - News)iShares MSCI Turkey Investable Market Index Fund (NYSEArca:TUR - News)iShares S&P/TOPIX 150 Index Fund (NYSEArca:ITF - News)MSCI India Index ETN (NYSEArca:INP - News)India Earnings Fund (NYSEArca:EPI - News)India Portfolio ETF (NYSEArca:PIN - News)iShares MSCI Thailand Investable Market Index Fund (NYSEArca:THD - News)Market Vectors Vietnam ETF (NYSEArca:VNM - News)Market Vectors Indonesia Index ETF (NYSEArca:IDX - News)iShares MSCI Indonesia Investable Market Index (NYSEArca:EIDO - News)Short / Leverage ETFs:ProShares UltraShort FTSE/Xinhua China 25 ETF (NYSEArca:FXP - News)ProShares UltraShort MSCI Japan ETF (NYSEArca:EWV - News)Sector Specialized / Dividend ETFs:Claymore/AlphaShares China Real Estate ETF (NYSEArca:TAO - News)iShares MSCI Japan Small Cap Index Fund (NYSEArca:SCJ - News)Claymore/AlphaShares China Small Cap Index ETF (NYSEArca:HAO - News)SPDR Russell/Nomura PRIME Japan ETF (NYSEArca:JPP - News)SPDR Russell/Nomura Small Cap Japan ETF (NYSEArca:JSC - News)WisdomTree Pacific ex-Japan High-Yielding Equity Fund (NYSEArca:DNH - News)WisdomTree Japan SmallCap Dividend Fund (NYSEArca:DFJ - News)WisdomTree Japan Total Dividend Fund (NYSEArca:DXJ - News)WisdomTree Pacific ex-Japan Total Dividend Fund (NYSEArca:DND - News)Jonathan Bernstein has been writing about ETFs since 2003 and is the author of Sector Trading: A Year in Exchange Traded Funds.

View photos
View photos