The U.S. equity market has been red hot in 2010, but last week we saw signs that stocks still are vulnerable to bad news. Word that Goldman Sachs (GS) had come under fire by the Securities and Exchange Commission caused a sharp sell off, and many investors were left wondering if the uptrend in the major U.S. indices has finally run its course. If stocks here at home have peaked, where can investors go to find red-hot returns?  The answer is Asia.

For a number of years now, China has been the country with the fastest economic growth of any emerging market nation.  China is on pace for GDP growth in the double-digit percentage range again this year, and there seems to be no stopping this economic juggernaut.  Fortunately, taking advantage of the uptrend in the Chinese equity market is easy with exchange-traded funds (ETFs).

Two great ETFs to profit from the China boom are the iShares FTSE/Xinhua China 25 Index (FXI), and the SPDR S&P China (GXC).  In the case of FXI, you are getting the 25 largest Chinese companies comprising ranked by total market capitalization. For broader exposure to the China market, there is GXC.  This ETF seeks performance that replicate the total return performance of S&P China BMI index, which is a market-cap weighted index representing the investable universe of publicly traded companies based in China. 

Both FXI and GXC have been strong performers over the 12 months, with FXI gaining nearly 30% while GXC jumped nearly 40%.  And while both ETFs have seen a 2%-plus pullback over the past three months, that pullback may just represent a buying opportunity in these two stellar China-based funds. 

Of course, not all Asian ETF opportunities are based in China. In fact, the hottest Asia equity market right now is Japan.  The island-nation’s economy is on the mend along with the rest of the world, and though Japan’s economy is not as robust as China’s, there are many established companies based in Japan providing investors with some very nice returns. 

The easiest way to play the current comeback in Japan is the iShares MSCI Japan Index (EWJ). This fund contains some of the biggest corporate names based in Japan, including Toyota, Mitsubishi, Honda, Canon and Sony to name just a few. The fund is up over 5% in the past six months, and over the last 12 months EWJ has pumped out returns of nearly 29%.  You can also use ETFs to get more aggressive with your Japan investments by using the Ultra MSCI Japan (EZJ). This leveraged ETF is designed to give you twice the performance of the MSCI Japan index.  So, if the index climbs 2%, EZJ should jump 4%.  Over the past six months, EZJ’s near 10% gain has topped all other Asia-based ETFs.

Certainly, both China and Japan are prime ways to play Asia, but smaller Asian emerging markets also offer investors some tremendous profit opportunities.  Other hot economies in the region include South Korea, Singapore and Taiwan, and thanks to the burgeoning ETF market, there’s a fund dedicated to each of these three emerging markets. 

For South Korea, it’s the iShares MSCI South Korea Index (EWY). This ETF is up nearly 9% over the past six months, and is behind only EZJ as the best performing Asian ETF since October.  The iShares MSCI Singapore Index (EWS) also has been a big winner over the past six months, with a gain of over 8%.  Exposure to Taiwan’s market can be gained via the iShares MSCI Taiwan Index (EWT). All three of these country-pegged ETFs are a great way to get diverse Asian exposure in your portfolio.

Finally, if you want to gain exposure to some of the bigger Asian markets, as well as some of the smaller, and potentially faster-moving emerging markets in Asia, you can go with the SPDR S&P Emerging Asia Pacific (GMF).  This fund seeks performance equal to the total return of the S&P/Citigroup BMI Asia Pacific Emerging index. This is a market-cap weighted index that measures the investable universe of publicly traded companies in the entire Asia Pacific region. This ETF includes some of the biggest companies in China, India, Indonesia, Malaysia, Pakistan, the Philippines, Taiwan and Thailand. If you want to buy only one fund with very broad Asia emerging market exposure, then GMF may be right for you.

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