Guide to Investing in Southeast Asia

Invest in Southeast Asia with ETFs and ADRs

Petronas Twin Towers in Kuala Lumpur, Malaysia
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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 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%. Investors looking for a safe-haven away from the U.S. and Europe may want to consider building in exposure to this outperforming region of the world.

Key Takeaways

  • Exchange-traded funds (ETFs) represent the easiest way to invest in Southeast Asia, providing instant diversification in U.S.-traded securities.
  • 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 looking for more specific exposure than offered by the ETFs listed above may also want to consider American Depository Receipts (ADRs).

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. A widely traded single Southeast Asian ETF and a few popular country-specific ETFs combined can 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 ETFs to play in this region:

  • Global X FTSE Southeast Asia (ASEA) is an ETF composed of assets from Singapore, Malaysia, Indonesia, Thailand, and the Philippines. Its underlying index, the FTSE ASEAN 40 Index, tracks the 40 largest companies in the region. The ETF’s primary focus is on financial services, which represented 51.22% of holdings as of April 2021. Other sectors represented 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 inaugurated in 2011. 
  • Singapore - The iShares MSCI Singapore (EWS) ETF provides broad exposure to Singapore's growing economy, 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, with a focus on energy (14.42%), financial services (13.43%), and consumer staples (11.65%), as of March 2021. 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 international investors to consider.
  • Malaysia - The iShares MSCI Malaysia (EWM) ETF provides broad exposure to Malaysia's growing economy, with a focus on financials (32.60%), consumer staples (13.98%), and health care (12.74%), as of March 2021. The fund's 0.51% expense ratio again puts it in line with many other ETFs, while its $312 million in net assets provides investors with significant 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, as of April 2021. The fund's 0.57% expense ratio makes it relatively affordable for investors, while its $34.5 million in total net assets makes it a very liquid investment for international investors to consider.
  • 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 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.