In the last two decades, GDP growth in emerging markets outpaced GDP growth in developed markets. Asia is likely to witness steady growth once the novel coronavirus headwind is navigated. I believe that Asian ETFs are therefore attractive for long-term exposure.
Considering the impending growth potential, I would not be surprised if the trend continues in the coming decade. It is important to have portfolio allocation to emerging markets.
This column will discuss four Asian ETFs with focus on China and India. In the coming decade, these two countries are likely to be among the fastest growing in the region.
Let’s look at the following Asian ETFs:
- Global X China Consumer ETF (NYSEARCA:CHIQ)
- Columbia India Consumer ETF (NYSEARCA:INCO)
- iShares Asia 50 ETF (NYSEARCA:AIA)
- iShares Asia/Pacific Dividend ETF (NYSEARCA:DVYA)
Asian ETFs: Global X China Consumer ETF (CHIQ)
For the last financial year, consumption spending contributed 57.8% to China’s GDP growth. After a sharp decline due to Covid-19, retail sales of consumer goods have been trending higher.
I believe that China’s consumption drive growth story will sustain as the middle class swells. This makes CHIQ ETF attractive to consider. It’s worth noting that in the last year, the ETF moved higher by 66%.
I want to add here that the fund has consistently delivered positive returns and has a low beta. This makes the ETF attractive for defensive investors seeking exposure to emerging markets.
Columbia India Consumer ETF (INCO)
The Covid-19 outbreak dented India’s GDP growth. However, prior to the pandemic, India had already overtaken China in terms of growth.
With favorable demographics, a growth-focused government and a growing middle class, India is one of the most attractive investment destinations.
Its expected that India’s consumption spending will double from $1.6 trillion in fiscal year 2020 to $3.2 trillion by FY2030. Given this growth outlook, a consumer-focused ETF is a must in the portfolio.
It’s worth noting that the fund’s inception date was August 2011. An amount of $10,000 invested an inception would have already grown to $20,000.
With policy reforms, India’s growth will accelerate and I believe that the INCO ETF is positioned to deliver superior returns in the next decade.
iShares Asia 50 ETF (AIA)
The AIA ETF is different as it’s not country specific. The iShares Asia 50 ETF gives exposure to 50 of the largest Asian stocks.
AIA ETF has moved higher by 26% in the last year and I expect the positive momentum to sustain as Asian economies gradually recover from the Covid-19 pandemic.
Some other interesting points to note about the ETF is that its price-earnings-ratio is 16.33. Further, the ETF has a 12-month trailing yield of 1.89%. Therefore, attractive valuations coupled with dividends make the ETF attractive.
In terms of top holdings, the ETF has largest exposure to Tencent Holdings (OTCMKTS:TCEHY), Taiwan Semiconductor Manufacturing (NYSE:TSM) and Samsung Electronics (OTCMKTS:SSNLF). Further, the largest country exposure is to China, followed by Korea and Taiwan.
Overall, AIA ETF has quality stock holdings and I expect the bullish momentum for the ETF to continue.
iShares Asia/Pacific Dividend ETF (DVYA)
For income investors, DVYA ETF gives exposure to some high-quality companies in the Asia-Pacific region. The ETF has a low beta of 1.04 and an attractive P/E of 8.1. In addition, the 12-month trailing yield stands at 5.41%, making the DVYA ETF worth considering.
In terms of sectors, the ETF is overweight financial, real estate and industrial. From a geographical perspective, the ETF has high exposure to Hong Kong, Australia and Japan.
Its worth noting that in the last six months, the ETF has provided negative returns of 21.4%. I see this as an opportunity. The pandemic has affected economic growth coupled with negative impacts on the financial and real estate areas.
Once this headwind is navigated, the ETF is likely to trend higher. Robust dividends provide an additional incentive to remain invested in the DVYA ETF.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.