Asia is a huge and diverse continent with a massive population of around 4.5 billion people. There are many themes playing out and it looks to be an area of high growth for the Investor.
The rise of the consumer.
With the rise of the population in Asia, comes the rise in the consumer. This spending spreads through all areas of the economy from Healthcare to everyday spending. (eg buying tech, iphones etc)
Infrastructure spending is on the rise. (especially in India)
Asia is in a unique space with lots of leapfrogging. For example, E-Commerce and online shopping have leapfrogged the bricks and mortar shopping centers. Online shopping with the use of phones/tablets is becoming the norm. The Tech supply chain is also prevalent in Asia. Asia is a leader in Robotics/AI, E-Commerce, Fin-tech & Biotech.
Capital market liberalization
We can now invest in Asia easily. This hasn’t always been the case. Asia has now been let into MSCI indices, albeit small allocations.
China seems to be at the forefront of countries for growth. The rise of the consumer, especially in E-commerce and healthcare is a massive sector of growth. China’s aging population (One child policy) is another area worth looking into, healthcare is and will be another growth sector with more hospitals, medical centers etc.
Some E-Commerce Stocks leading the way:
Alibaba, JD, Weibo
The ‘Rise of the middle class’ in China/Asia will bring growth to all these thematic’s, especially the Asian FANG, known as:
Samsung, Tencent, Alibaba, TCMC.
The environment for Tech in Asia is also very different with less regulatory risk. The ‘Tech Arms’ race is an area China and Asia want to win.
Another sector playing out is the ‘Internet of things’ Taiwan Semiconductors (TSMC) are a behemoth in this area.
The STAT club also have large stakes in other growth companies which make them more appealing and adds a lot of value to the companies.
Asia is a market priced a lot differently to Australia and the US. For example, in Australia the average PEG ratio is 3.8 times earnings, the US, probably half that and in Asia its quite easy to get a PEG ratio of around 1 to 1.5! (PEG of 1 = A company growing at 20% a year has a PE of 20) This again makes it all the more appealing to the foreign investor.
The current MSCI index has access to only developed countries. (No China, India, Korea)
The MSCI all countries index has tiny percentages to Asia.
This hasn’t helped the Investor trying to get access to these markets and ETF’s are generally very under-represented. Is Asia the next long-term story for the flow of funds? The MSCI must change to suit and cater for these huge economies?
China and India seem to be the best areas for growth but there are great little niche sectors elsewhere as well. For example, Korea and Taiwan have great tech companies.
How do I get access?
For Investors wanting to get access to this area, it is getting easier. ETF’s are growing rapidly and new funds are coming out all the time, although we are a long way behind the US. In Australia, we struggle to get access to a lot of interesting countries. India is a good example. To invest directly into India, you would have to trade the US market for ETF’s like INDY and INDA.
The good news, there is a new ETF that looks very interesting from Beta Shares:
Other ETF’s I like that will get you exposure:
IEM (Emerging markets)
Fund Managers like Ellerston Asian Investments also look great, but you will have to pay for it with a higher fee.
Investment Trackers – ETF Tracker, is a great tool for comparing and sorting through all of the ETFs on the ASX.
Three spreadsheets are categorised into Australian, Global & Countries/Emerging Markets. Check it out here:
Performance in Asia has been good. Look at the below comparison to the ASX200. (ASX purple line)
Will the trend continue? I think so long term.
This is not Financial advice. Everyone is in a different financial situation with different financial needs and objectives. Follow this information at your own risk.
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