Guide to Investing in Southeast Asia
Invest in Southeast Asia with ETFs and ADRs
Southeast Asia has long been an integral part of global trade, from the spices of ancient times to the microprocessors of modern times. These nations south of China, east of India, and north of Australia include popular international investment destinations like Indonesia, Malaysia, Singapore, Thailand and the Philippines. Since 2008, these emerging markets have outperformed many others in the Asia-Pacific region and around the world.
The International Monetary Fund ("IMF") expects Malaysia to grow 4.7%, Indonesia to grow 6.3%, Thailand to grow 7.5%, and Singapore to grow 3.5% in 2013, after already posting world-leading growth rates throughout 2012. While these rates will probably not be sustainable indefinitely, investors looking for a safe-haven away from the U.S. and Europe may want to consider building in exposure to the outperforming region of the world.
Investing in Southeast Asia with ETFs
Exchange-traded funds ("ETFs") represent the easiest way to invest in Southeast Asia, providing instant diversification in U.S.-traded securities. While there is no widely traded single Southeast Asian ETF, there are a few popular country-specific ETFs that can be combined to create broad exposure to the region. Singapore, Indonesia, Malaysia, Thailand, and the Philippines all have ETFs available that trade in the U.S. and can be combined into a single portfolio.
Here's a quick overview of five ETFs to play countries in this region:
- Singapore - The iShares MSCI Singapore Index (EWS) ETF provides broad exposure to Singapore's growing economy, with a focus on financial services (33.55%), industrials (19%), real estate (15.96%) and communication (11.96%). The fund's 0.61% expense ratio is similar to many other ETFs, while its $1.6 billion in total assets makes it one of the largest and most liquid ETFs in the region.
- Thailand - The iShares MSCI Thailand Capped Investable Market Index (THD) ETF provides broad exposure to Thailand's economy, with a focus on financial services (33.07%), energy (15.86%) and basic materials (11.06%). The fund's 0.61% expense ratio puts it on par with many other ETFs, while its $1.1 billion in total assets makes it a very liquid investment for international investors to consider.
- Malaysia - The iShares MSCI Malaysia Index (EWM) ETF provides broad exposure to Malaysia's growing economy, with a focus on financials (30.01%), industrials (15.36%), consumer defensive (11.21%), and communication (11.13%). The fund's 0.61% expense ratio again puts it in line with many other ETFs, while its $940 million in total assets provides investors with significant liquidity.
- Indonesia - The Market Vectors Indonesia Index ETF (IDX) provides broad exposure to Indonesia's economy, with a focus on financial services (27.39%), basic materials (19.68%), consumer defensive (15%), and consumer cyclical (12.29%) sectors. The fund's 0.57% expense ratio makes it relatively affordable for investors, while its $460 million in total assets makes it a very liquid investment for international investors to consider.
- Philippines - The iShares MSCI Philippines Investable Market Index (EPHE) ETF provides broad exposure to the Philippine economy, with a focus on real estate (21.73%), consumer cyclical (19.89%), utilities (15.07%), financial services (14.07%), and industrials (12.62%). The fund's 0.61% expense ratio is similar to many other ETFs, while its $380 million in total assets makes it a very liquid investment to consider.
Risk Factors & Other Considerations
International investors looking to build exposure to Southeast Asia should be aware that investing in the region involves several risks, ranging from sensitivity to China's economic growth to the potential for natural disasters in the region. Investors should carefully weigh these risks before committing any capital while diversifying beyond these countries or this region in order to mitigate overall portfolio risk resulting from an overallotment.
Investors looking for more specific exposure than offered by the ETFs listed above may also want to consider American Depository Receipts ("ADRs"). These are U.S.-traded securities that are designed to mimic the movement of foreign equities trading on foreign stock exchanges. Often times, ADRs are offered for large foreign companies operating in foreign countries and can be easiest found by looking at holdings of the aforementioned ETFs.