Asia-Pacific ETFs: Region offers resilience, value and opportunity

Mar 20th, 2012 | By | Category: Equities

Over the last 10 years, the Asia-Pacific equity market, excluding Japan, has delivered an annualised return of over 12%.

Asia-Pacific ETFs offers resilience, value and opportunity

Asia-Pacific benefits from a number of positive characteristics including resilience, value, wealth, intra-Asian trade and car ownership, according to Martin Currie Investment Management.

While 2012 could be another year of challenges for global markets, the Asia-Pacific region benefits from a number of positive characteristics which should continue to drive growth forward, according to the Asia desk at Edinburgh-based Martin Currie Investment Management.

The specific characteristics Martin Currie’s Asia desk highlight include resilience, value, wealth, intra-Asian trade and car ownership.

Asia Pacific has not been entirely unaffected by the continuing problems of the Western economies, but has proved more resilient and will likely remain so. “It’s fair to say that Asia isn’t immune, but it does have the flexibility of response that the Western world lacks,” says Jason McCay, head of Asia at Martin Currie.

Key to this is the strength of Asian balance sheets. Though the balance sheets of Western corporates are much repaired, the balance sheets of Western governments remain precariously weighed down by debt. This contrasts starkly with Asia, where both corporate and government balance sheets are in good shape. This allows them to withstand a more challenging global environment and provide the capital to invest in growth.

FEATURED PRODUCT

DB X-tracker MSCI AC Asia ex Japan TRN Index ETF
(XAXJ)

– Diversified exposure to 10 emerging market
and developed market countries across Asia

– Over 600 constiuents ranging from Korean electronics
giant Samsung, to Chinese telecoms behemoth
China Mobile, to pan-Asian life insurer AIA Group

– PE ratio of 12.28 attractive for such a high-growth
region, dividend yield of 2.64%

– Over-collateralised swap-based replication

– UCITS compliant, London listed, UK Distributor
Status, eligible for ISAs and SIPPs, TER of 0.65%

In terms of valuations, Asian-Pacific stocks are trading below their long-term averages as the market discounts a possible slowdown. This provides the opportunity to build positions at attractive valuations, says the Martin Currie team.

Changing spending patterns and rising domestic consumption are powerful secular themes that are driving increased intra-regional trade, demand for consumer goods and development of a meaningful regional wealth-management industry.

Increasing domestic demand for commodities and goods is promoting trade within the region, reducing the reliance on Western economies, and driving further growth. Governments across the Asia-Pacific region are promoting measures to reduce tariffs and boost trade.

The team point to the China/ASEAN bloc free-trade agreement, which came into effect on 1 January 2010. This created the world’s third-largest free-trade area by GDP size and its biggest in terms of population – the value of goods traded within the bloc in 2012 is forecast to be around $350–400bn.

Although the automotive sector tends to be cyclical, in Asia it is a market with strong long-term growth potential. According to Martin Currie, vehicle ownership in Western markets is between 750–800 vehicles per 1000 people. In South Korea the figure is approx 350 vehicles per 1000 people, and in highly populated countries like China, India and Indonesia it is well under 100 (indeed, under 50 in China and India).

Another theme Martin Currie’s Asia desk highlight is personal wealth, which they believe creates opportunities in the financials sector. Rising personal wealth has created demand for more sophisticated financial services. Along with the fact that many Asian companies are now expanding their operations across other countries in the region, this makes it increasingly important for banks to provide a pan-regional wealth offering.

Thanks to all these positive characteristics, “even in these tough times, Asia measures up remarkably well”, says McCay.

For investors seeking an investment play on Asia-Pacific ex Japan, there are a number of London-listed ETFs to consider (many of have duel/parallel listings on NYSE Euronext, Deutsche Borse and Borsa Italiana):

DB X-tracker MSCI AC Asia ex Japan TRN Index ETF (XAXJ)
The DB X-tracker MSCI AC Asia ex Japan TRN Index ETF tracks the MSCI AC Asia ex Japan Index. This is a free float-adjusted market-capitalisation weighted index that is designed to measure the equity market performance of Asia, excluding Japan. The index consists of equities from the following 10 developed and emerging market countries: China, Hong Kong, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand. TER 0.65%.

Lyxor ETF MSCI Asia APEX 50 (FAPX)
The Lyxor ETF MSCI Asia APEX 50 tracks the MSCI Asia APEX 50 Index. This index is a free-float adjusted market-capitalisation weighted index that is designed to track the 50 largest stocks in the Asia ex Japan region represented in the MSCI AC Asia ex Japan Index. The fund consists of holdings from South Korea, Taiwan, China, Hong Kong and Singapore. TER 0.50%.

iShares MSCI AC Far East ex-Japan ETF (IFF)
The iShares MSCI AC Far East ex-Japan ETF tracks the MSCI AC Far East ex Japan Index. This index is free-float market-capitalisation weighted index designed to offer exposure to stocks from developed and emerging East Asian countries (excluding Japan) which comply with MSCI’s size, liquidity, and free float criteria. East Asia is defined as Asia excluding India, AC stands for All Countries.  The fund consists of holdings from China, South Korea, Taiwan, Hong Kong, Singapore, Malaysia, Indonesia, Thailand and the Philippines. TER 0.74%.

HSBC MSCI EM Far East ETF (HMFD)
The HSBC MSCI EM Far East ETF tracks the MSCI EM Far East Index. This index is a market-capitalisation weighted index designed to measure the performance of the largest companies in China (as accessible through the Hong Kong market), Indonesia, Korea, Malaysia, Philippines, Taiwan and Thailand. TER 0.60%.

PowerShares FTSE RAFI Asia Pacific Ex-Japan (PSRA)
The PowerShares FTSE RAFI Asia Pacific Ex-Japan ETF tracks the FTSE RAFI Asia Pacific Ex-Japan Index. This index is designed to track the performance of the largest Asia-Pacific companies (excluding Japan) based on the following four fundamental measures of firm size: book value, income, sales and dividends. The equities with the highest fundamental strength are weighted by their fundamental scores.  The fund currently consists of holdings from Australia, South Korea, Hong Kong, Singapore, New Zealand, China and Indonesia. TER 0.80%.

The following three funds track the MSCI EM Asia Index:

Amundi ETF MSCI EM Asia (AASI)
TER 0.45%

SPDR MSCI EM Asia ETF (EMAS)
TER 0.65%

Credit Suisse MSCI EM Asia (CEM1)
TER 0.65%

MSCI EM Asia Index is a free float-adjusted market-capitalisation weighted index that is designed to measure the equity market performance of emerging markets in Asia, including China, South Korea, Taiwan, India, Malaysia, Indonesia, Thailand and the Philippines.

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