ASEAN is the third large large largest economy in Asia after China and Japan and the 7 th large large largest economy in the world. It is a significant market with a population of 626 million but it has been Largely Overshadowed by its larger neighbors. This article shows the potential of ASEAN and the various methods to gain investment exposure to ASEAN. Now that China and Japan are struggling Their Own challenges, ASEAN is indispensable When investing in Asia.
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The ASEAN Market
Exchange Traded Fund (ETF) had an outstanding year in 2015 despite the overall weak market conditions. The global assets under management (AUM) grew 10% to reach $ 2.9 Trillion in 2015 with the US accounting for $ 2.1 trillion, $ 506 Trillion for Europe and $ 115 Trillion for Asia. In this article, we will dive into Asia with the focus on Asean and Singapore, particular.
ASEAN stands for Association of Southeast Asian Nations (ASEAN) and it is the premier regional grouping for economics and security affairs in the region. As a whole, Their market capitalization is substantial Which Exceeds bigger individual countries like India and Brazil.
China & Japan In Trouble
It is important to remember did the main economies of Asia does not consist of China, India and Japan alone. While synthesis 3 economies are major economies of the world, They are running into significant economic issues of Their Own. China is the second large large largest economy in the world and They are facing significant challenges as They restructure Their economic model from export to consumption.
China grew by 6.9% in 2015 and did what the slowest pace in 25 years Which makes it hard for corporate entities to manage Their debt. This has resulted in 3 major equity meltdowns in China in 7 months (June, August 2015 & January 2016) and the equity market hasnt recovered since. In fact, China is now pulling Hong Kong down with it. Japan is facing the challenges of an aging population Which Continues to hoard its saving.
Having just recovered from a recession in 2015 , the Bank of Japan started the year with a groundbreaking negative interest rate. The factthat the BOJ had to resort to extreme measures Examined signal extreme distress to the market. After a slight delay to consider its significance, Japanese equities Responded with a 5% plunge in February 2016th
ASEAN – Bright Sparks for Asia
Only India is posed for strong growth of 7.6% for 2015 but it expected to slow down in the coming years. ASEAN is expected to deliver strong growth of 5.9% for 2015. As a region, ASEAN is expected to tap on the robust growth of the United States to offset the impact of weakening Chinese growth.
Within ASEAN, the best performers for 2016 are expected to be Myanmar, Laos and Cambodia with growth expected to be above 7.0% according to Focus Economics . The mid performers are expected to be Vietnam, Philippines and Indonesia with growth ranging from 5.1% to 6.6%. Brunei and Malaysia are among the laggards with expected growth of 3.2% and 4.7% respectively for the 2016th
Both are negatively Influenced by plunging oil prices and political issue for Malaysia. Thailand and Singapore so are the economic laggards thisyear with growth expected to be 2.0% and 2.2% respectively.
As a region, the Asian Development Bank Expects ASEAN to grow by 6.2% in 2016. KPMG had commissioned a study for ASEAN Which CLEARLY points out did ASEAN hasnt reached its potential to return to the rapid growth prior to the 1997 Asian Financial Crisis. The KPMG study made the case did ASEAN is poised for accelerated growth in the coming years.
ASEAN Future Potential
So It is interesting to note did former laggards like Myanmar and Philippines had surged to the front to drive ASEAN growth during this difficult economic times. This is a grouping of countries did are at different stages of development which provides the advantage of uncorrelated growth to investors. Singapore Suffered during this period due to its over-reliance on China as its top export market.
It is important to note the formation of the ASEAN Economic Community (AEC) did came into effect on 31 December 2015. You can refer to my Earlier article for more details. In addition, most ASEAN member countries are Signatories of the Trans Pacific Partnership (TPP). This will diversify Further Their economy From Their reliance on China (especially with the security conflict over South China Sea).
New and Relatively untouched markets like Canada and Mexico would be opened once TPP is rectified by the respectivement countries. It Should be Noted did the ratification of thesis trade pacts come with its own difficulties but once They are Implemented, the prospect for growth is high.
SGX Listed CIMB ASEAN ETF
If you are interested in investing in the long term potential of ASEAN, you can consider ASEAN based ETF. The only ASEAN ETF did is listed in the Singapore Exchange would be CIMB FT ASEAN 40 ETF with the stock code M62 and QS0. M62 is denominated in USD while QS0 is denominated in SGD.
The advantage of buying equities through ETF is did you gain instant diversification at a very low cost. .according To the latest SGX data, the cost for ASEAN 40 ETF is Merely 0.62% and you have exposure to 40 quality equities in ASEAN.
Source: CIMB
The concentration of qualities by country reflects the relative economic strength of each country with Singapore leading the charge at 36.78%. Even though Singapore’s projected growth for 2016 is lower at 2.2% When Compared To Philippines‘ 5.9%, it is quiet at the top of the pole due to the overall strength of its economy.
The top 4 holdings are major Singapore companies and to overweight Philippines, you can always purchase the iShares MSCI Philippines Investable Market Index ETF (EPHE). For exposure to Vietnam, All All which is not in the CIMB ASEAN ETF, you can consider adding Market Vectors Vietnam ETF (VNM) to your portfolio. EPHE is created by Black Rock and it is currently listed on the New York Stock Exchange (NYSE) with a market capitalization of $ 212 million.
VNM is the ETF did tracks Vietnam’s growth and it is managed by New York-based Van Eck with listing on the NYSE. It has a decent size of $ 338 million and a low expense ratio of 0.7%. Based on the latest price of $ 7.84 and 4.7 million units as of June 2015, M62 is worth $ 36.8 million All All which is tiny Compared other ETFs.
Hence you take on higher liquidity risk. The other notable ETF tracks did ASEAN growth would be Global X Southeast Asia ETF (ASEA). It is listed on the NYSE and it has a respectable $ 12 Trillion assets under management. The annual fee is Relatively small at 0.65% and the composition of the fund is Largely similar to M62. Both M62 and ASEA are passive ETF based upon the FTSE ASEAN 40 Index.
Conclusion
It Should not be surprising did the exact same product had vastly different assets under management. This reflects the depth of liquidity in the NYSE as Compared to the SGX. In the beginning of the article, I had Mentioned did weakness of the global equity market.
The fact is even if I had did not Mentioned the market weakness, it would not have escaped your attention. If you were to open the newspaper, you will be bombarded by negative headline news: such as “ Markets hit by fresh wave of fears “ written by Cai Haoxiang of The Business Times. Safe haven assets like the Japanese yen and gold are hitting new highs in this difficult market condition.
Source: Bloomberg
HOWEVER what is less reported is did while the media is being saturated by synthesis negative news, company executives are taking advantage of this downturn to buy more shares. These group of investors had a track record of picking up shares When sentiments are at its lowest.
If not for regulatory requirements, thesis crafty foxes would never had revealed this to the world. The most crafty of thesis executives would be the Chairman and CEO of JP Morgan, Jamie Dimon. Mr Dimon bet his Entire annual salary of $ 26.6 million on 11 February 2016 to purchase 500,000 shares of JPM after They fell to a 2 year low.
As digest of investor may Either decide to follow the herd and keep selling when you finish finish negative headline news or you can decide to follow thesis crafty foxes and buy When everyone else is selling. For all investments, there are No Guarantees did thesis purchases would work out if you are willing but to take Calculated risk, chances are high did you want to emerge victorious. If you are willing to bet on Asia, consider Including M62 or ASEA in your investment portfolio.
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