Southeast Asia has long been a vital part of global trade, from the spices of ancient times to the technology of modern times. These nations south of China, east of India, and north of Australia include popular investment havens like Indonesia, Malaysia, Singapore, Thailand, and the Philippines. Since 2008, these emerging markets have done better than many others in the Asia-Pacific region and around the world.
The International Monetary Fund ("IMF") expects post-pandemic GDP growth through 2025 for Malaysia and Indonesia to taper from about 5.8% to 5.2%; for Thailand, to peak at around 5.8% and then level at 3.6%; and for Singapore, to settle from 3.2% to 2.5%. People looking for a safe haven away from the U.S. and Europe may want to think about building in exposure to this outperforming region of the world.
- ETFs are one of the easiest ways to invest in Southeast Asia with instant diversification in U.S.-traded securities.
- Be aware that investing in the region involves a few risks, ranging from concern about China's economic growth to the potential for natural disasters in the region.
- People looking for more direct exposure than offered by the ETFs listed below may also want to consider American Depository Receipts (ADRs).
Investing in Southeast Asia with ETFs
Exchange-traded funds ("ETFs") may be one of the easiest ways to invest in Southeast Asia. A broadly traded single Southeast Asian ETF and a few popular country-specific ETFs, when done at the same time, can create broad exposure to the region. Singapore, Indonesia, Malaysia, Thailand, and the Philippines all have ETFs that trade in the U.S. and can be added to a single portfolio.
Here's a quick overview of ETFs to play in this region:
- Global X FTSE Southeast Asia (ASEA) is an ETF made of assets from Singapore, Malaysia, Indonesia, Thailand, and the Philippines. Its underlying index, the FTSE ASEAN 40 Index, tracks the 40 largest firms in the region. The ETF's main focus is on financial services, which represented 51.22% of holdings as of April 2021. Other sectors include communication services (7.72%), consumer staples (6.54%), real estate (6.53%), energy (5.95%), industrials (5.31%), health care (5.31%), materials (4.58%), and utilities (3.59%). The fund's expense ratio is 0.65%, and it manages $31.87 million in assets. It was launched in 2011.
- Singapore - The iShares MSCI Singapore (EWS) ETF provides broad exposure to Singapore's growing economy. It comes with a focus on financial services (49.96%), real estate (22.55%), and industrials (12.11%). The fund's 0.51% expense ratio is similar to many other ETFs, while its $718 million in net assets makes it one of the largest and most liquid ETFs in the region.
- Thailand - The iShares MSCI Thailand Capped Investable Market (THD) ETF provides broad exposure to Thailand's economy. There is a focus on energy (14.42%), financial services (13.43%), and consumer staples (11.65%). The fund's 0.59% expense ratio puts it on par with many other ETFs, while its $425 million in net assets makes it a very liquid investment for people to look at.
- Malaysia - The iShares MSCI Malaysia (EWM) ETF provides broad exposure to Malaysia's growing economy. It has a focus on financials (32.60%), consumer staples (13.98%), and health care (12.74%). The fund's 0.51% expense ratio again puts it in line with many other ETFs, while its $312 million in net assets offers strong liquidity.
- Indonesia - The VanEck Vectors Indonesia Index ETF (IDX) provides broad exposure to Indonesia's economy, with a focus on financial services (31.0%), materials (17.9%), consumer staples (14%), and consumer discretionary (9.3%) sectors. The fund's 0.57% expense ratio makes it fairly affordable, while its $34.5 million in total net assets makes it a very liquid investment for people to think about getting into.
- Philippines - The iShares MSCI Philippines Investable Market (EPHE) ETF provides broad exposure to the Philippine economy, with a focus on industrials (31.44%), real estate (24.98%), financial services (15.98%), consumer discretionary (6.53%), and communication (6.27%) as of March 2021. The fund's 0.59% expense ratio is similar to many other ETFs, while its $133 million in net assets makes it a very liquid investment to think about.
Risk Factors & Other Considerations
People looking to build exposure to Southeast Asia should be aware that investing in the region involves a few risks. These range from sensitivity to China's economic growth to the potential for natural disasters in the region. You should take care to weigh these risks before investing. You should also diversify beyond these countries or this region in order to lower your overall portfolio risk that may result from putting too much money into only one place.
If you're looking for more specific exposure than offered by the ETFs listed above, you 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. Oftentimes, ADRs are offered for large foreign companies operating in foreign countries and can be found by looking at the holdings of these EFTs.