For every buyer, there has to be a seller. And right now, no one’s buying into the broader U.S. and western markets. Understandably, the fundamental challenges are pretty steep. The rising dollar has put a damper on the S&P 500, which is up 5% year-to-date, but has drifted sideways since mid-July. Across the Atlantic, Britain’s FTSE 100 index is soaring, but European markets have been choppy following the “Brexit” drama.But it’s rare for every single sector to decline. Somebody has to benefit, which brings us to Asian stocks.
Unlike the S&P 500 — which is still near all-time highs — the vast Asia-Pacific markets are just now finding their footing. The Shanghai Stock Exchange is trying to recover from last year’s meteoric bubble. Japan had its last bubble in 1989, and the ensuing comeback effort has been tedious, to say the least. Just from a cyclical perspective, you’re more likely to be buying Asian stocks near the bottom than the top.
Even from a nearer-term angle, the fundamentals for Asian stocks are much more favorable. A great example is the Bank of Japan’s business sentiment survey. Overall, Japanese companies are lukewarm to economic prospects. Of course, that’s not the answer the BOJ is looking for, and we can reasonably expect further dovish policies. That should be a positive for Japanese exporters and for Asian stocks in general.
Indeed, the counterintuitive “bad news is good news” appears to be making its way across the Pacific. At a time when the U.S. Federal Reserve is at least entertaining the idea of hiking interest rates, Asian stocks for the most part don’t have to worry about monetary overhangs. It’s a grow or die sector, which means regional exchange-traded funds should have greater reward potential.
Here are four ETFs to put on your watch list beacuse of their focus on Asian stocks.
ETFs to Buy for Growth in Asian Stocks: iShares MSCI Thailand Capped ETF (THD)
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Expense Ratio: 0.62%, or or $62 annually for every $10,000 invested
When it comes to emerging markets, Thailand isn’t necessarily the most popular investment. However, overlooking the iShares MSCI Thailand Capped ETF (NYSEARCA:THD) would be a mistake. According to The World Bank, Thailand jumped from low-income nation status to “an upper-income country in less than a generation.”
That’s a remarkable shift that you’re not going to get from “mainstream” Asian stocks. Thailand is also making inroads into social welfare, such as improving education and professional mobility.
So far, the short- and long-term efforts by the Thai government have worked like a charm for THD. On a YTD basis, the THD ETF is up slightly over 25%. Again, you’re just not going to find that kind of growth in the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). And despite the twists and turns that occurred this year, THD has mostly charged ahead. That robustness gives you confidence that this is no fly-by-night investment idea.
But the bottom line for THD is that Thailand is a hungry economy that is eager to prove itself. Now that technologies and specialized education have closed the global skill gap, Thailand naturally wants a piece of the action. More competition is a plus for the consumer, and therefore, should be a strong tailwind for THD.
ETFs to Buy for Growth in Asian Stocks: iShares MSCI Taiwan Index (ETF) (EWT)
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Expense Ratio: 0.62%
Often overshadowed by neighboring China, Taiwan is still not to be underestimated. Despite being much smaller territorially, the Taiwanese market packs quite a punch. The iShares MSCI Taiwan Index (ETF) (NYSEARCA:EWT) is up 23% YTD, with a similar robust performance like the aforementioned THD.
The main difference is that EWT is considered a more stable investment idea. With trading volume often exceeding six million shares, EWT will remain a stronghold for Asian stocks.
Another key difference is that Taiwan is clearly an advanced economy; however, THD tends to trade like an emerging market ETF. Essentially, there’s a lot of ways to play the Taiwanese market. For instance, EWT was one of the hardest hit funds during last year’s August crash. On the flip side, the ETF also had a quick and dramatic recovery. Boring EWT is not.
Like most other Asian stocks, the Taiwanese sector is heavily dependent on exports. Sometimes, that dependency isn’t ideal when the economic cycle shifts unfavorably. But with the dollar rising in strength, this is music to the ears of EWT investors. As global competition tightens, look for Taiwan to assert itself, and ultimately, drive value to this ETF.
ETFs to Buy for Growth in Asian Stocks: iShares MSCI India ETF (INDA)
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Expense Ratio: 0.68%
Admittedly, the iShares MSCI India ETF (BATS:INDA) is not the most original idea. It’s also not the most profitable among Asian stocks, up only 8% YTD. Still, we are talking India, which is now the fastest growing economy in the world.
In addition, Prime Minister Narendra Modi was elected under the promise of vast economic and social reform. Whether it’s “Modinomics” or the quantifiable performance India has forwarded, the INDA ETF is worthy of a second look.
One of the intriguing elements of the INDA growth story is that it’s not just limited to personal gain. India’s rapidly escalating economy has helped significantly reduce the number of poverty-stricken people in South Asia. Also, India’s lowest income earners have seen a modest lift in wages. While I would hesitate to call INDA a philanthropic investment idea, the ETF’s rise is a win for capitalism.
Another win is demographics. One of the far-reaching worries for Asian stocks is an aging population and the implications for fiscal responsibility. However, India will account for 20% of the world’s working-age population. Yes, the country will need to step up and bring better jobs for those people. Yet that, in my opinion, is a good “problem” to have. And it’s one that should bring long-term benefits for the INDA ETF.
ETFs to Buy for Growth in Asian Stocks: Market Vectors Vietnam ETF (VNM)
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Expense Ratio: 0.67%
The most speculative idea on this list is Market Vectors Vietnam ETF (NYSEARCA:VNM). As far as technical performance goes, the VNM is a laggard, up a little over 1% YTD.
It also has a reputation of being a market asteroid. Between September 2014 and February 2016, the VNM lost 37% of its value. As a result, investors have headed for the exits, and current trading volume is fairly light.
Why then would anybody want to invest in the VNM? First, it’s the most structurally stable of Vietnam-centric ETFs. There are others, but you would have to trade in the wild world of pink sheets. More importantly, Vietnam is a work in progress. Its economy has steadily transitioned from an archaic, state-run operation to one that is more open to modernization. There’s still much progress to be made, which gives VNM a “frontier ETF” flavor.
Also of note is the positive shift in American diplomacy towards Vietnam. Needless to say, the American involvement in the Vietnam War is a lingering pain that is still felt today. What the policy shift does not only helps heal old wounds, but it could engender a new strategy in Southeast Asia. With China taking an ever-assertive stance, our relationship with Vietnam and other nations may act as a counterweight.
Whether that will pay off for VNM remains to be seen. But as a long-term approach, it is one of the most intriguing ideas among Asian stocks.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
