Best ETFs for Southeast Asia Exposure in 2023
It’s been a rough and tumble year for investors in 2022. Major indices have retreated, failing to sustain a comeback. American tech stocks, typically the high-growth darlings of Wall Street, have been humbled by the rout, with the Nasdaq plummeting by about a third.
It’s not only the US economy either. Inflation is biting everywhere, and while Russia’s invasion of Ukraine rocked Europe, China’s economy has struggled with ongoing Covid lockdowns. Meanwhile, much of the developing world reeled under food and energy shortages caused by geopolitical conflict and climate disasters.
Despite the concern about a global recession, there are some bright spots on the map for the new year. Southeast Asia, in particular, holds the potential for renewed growth.
The region’s economy is on the rise, thanks partly to its strategic position at the intersection of two major trade pacts: RCEP and CPTPP. Southeast Asia is home to 680 million people, making it larger than both the EU and the US. Its population is becoming increasingly educated and affluent, creating a burgeoning middle class. The World Economic Forum estimates 140 million new consumers will arrive there by 2030. Hence, many companies are looking to tap into this market.
The Asian Development Bank estimates the region will achieve a 5% GDP growth next year, above its average estimate for broader Developing Asia.
Also, analysts at Maybank see Southeast Asia could be somewhat sheltered from rising US interest rates and a global recession in 2023. They also predict the region will outperform China, owing to Beijing’s slow exit from its zero-Covid policies. Meanwhile, many Southeast Asian economies are already recovering strongly from the pandemic and have been boosted by resurgent travel, which is particularly favorable for tourism-heavy economies like Thailand.
Yet there are risks. Southeast Asia is especially vulnerable to the effects of climate change and rising sea levels. Water scarcity is another issue, especially in the upper Mekong River. Also, while integration has come a long way, ASEAN is no EU. There is no common currency or open borders, and each country has its own financial regulations, adding friction to capital flows.
Southeast Asian ETF Picks
Global X FTSE Southeast Asia (ASEA) is a ‘one-stop shop’ fund, offering broad exposure to the region’s top forty companies. Over half of its holdings are in finance, while a broad swathe of other sectors, including communications, consumer staples, real estate, energy, and health care, fill up the remainder (each accounting for less than 10% overall). Its holdings are based in the region’s largest economies, namely Singapore, Indonesia, Thailand, Malaysia, and the Philippines. It is currently trading at just under $15 and delivered year-to-date returns of 4.26% in 2022.
Southeast Asia’s diversity is what makes it so dynamic. At the same time, this regional diversity can make it difficult to assess as an investment destination. For investors who prefer single plays, several funds target individual countries in the region.
For Singapore, the region’s undisputed finance center, there is the iShares MSCI Singapore ETF (EWS). Perhaps unsurprisingly, it is dominated by financial holdings, which comprise over 40% of the fund’s total. Real estate takes up about a fifth. The fund has an expense ratio of 0.50% and, currently trading at around $19, brought a year-to-date return of -9.79% in 2022.
For Indonesia, the largest economy in Southeast Asia, there is the VanEck Vectors Indonesia Index ETF (IDX). Roughly one-third of its weighting is in finance, with materials, consumer staples, communication services, and energy each making up at least 10%. About four-fifths of its assets are based in Indonesia, with another 15% split between China, Singapore, and Thailand. IDX has an expense ratio of 0.57% and, currently trading at around $18, brought a year-to-date return of -8.61% in 2022.
For the Philippines, which was the fastest-growing economy in the region earlier this year, there is the iShares MSCI Philippines Investable Market (EPHE). This ETF boasts a different sectoral mix, with almost 30% of holdings in industrials, 20% in real estate, 18% in finance, and 9% in consumer staples. EPHE has an expense ratio of 0.57% and, currently trading at around $26, delivered a year-to-date return of -14.51% in 2022.
This article was produced and syndicated by Wealth of Geeks.
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