As advanced economies continue to limp out of recession, Southeast Asia is a rising star of the global market, led by its five fastest-growing countries: Indonesia, Malaysia, the Philippines, Thailand [Thailand ETFs: Thai economy bouncing back from floods], and Vietnam, according to a report by global accounting and advisory firm, PricewaterhouseCoopers (PwC).
“After decades in the making, economic, political, and market factors, combined with a landscape more focused now than ever on attracting capital and development, have converged to create a mature environment ripe with opportunity”, the report says.
The report, The Southeast Asian tigers roar again: this time for real, outlines the case for investing in the region, which is home to nearly 9% of the global population and home to a large and growing pool of highly skilled, low-cost workers. Understandably, international companies are increasingly looking to leverage Southeast Asia’s pool of low-cost, skilled labour.
The region’s fastest five share a “serendipitous labour scenario”, characterised by large, relatively low-cost, untapped and highly literate and skilled labour pools.
The “fastest five” Southeast Asian countries
HSBC MSCI Indonesia ETF (HIDR)
DB X-trackers MSCI Malaysia TRN Index ETF (XSX3)
DB X-trackers MSCI Philippines TRN Index ETF (XPHG)
DB X-trackers MSCI Thailand TRN Index ETF (XCX4)
DB X-trackers FTSE Vietnam Index ETF (XFVT)
(scroll down for full details and regional funds)
According to the report: “The combined population of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam is roughly equivalent to 40% of China’s population. The combined labour force of the ‘fastest five’ eclipses the United States and all of Europe and totals about one-third of China’s sizeable workforce.
“Long recognised as a low-cost production platform, Southeast Asia will continue to reap the benefits of its competitively priced labour pool, which is expected to endure as the region’s greatest asset. Labour costs in Southeast Asia are considerably lower than in North America and Western Europe; most importantly they are lower than in China. The hourly wage rate in China is $1.56, compared to only $0.81 in Vietnam and $0.51 in Indonesia, according to International Market Assessment.
“Indonesia, Thailand, and Vietnam have all experienced steady increases in adult literacy rates, averaging at around 95% in the most recent survey by the UNESCO. Each of the fastest five countries showed an average percentage of literacy rate of 93% between 2006 and 2008, according to Asian Development Bank. Additionally, English is either an official language or favoured as a secondary language in the Philippines, Malaysia, Thailand, and Vietnam. The fastest five also spend a greater proportion of their government budgets on education relative to developed countries such as the United States.”
PwC also highlights the potential of the region’s burgeoning middle class [Asia-Pacific ETFs: Region offers resilience, value and opportunity]. According to the report:
“The average economic growth rate of the fastest five is projected to reach an average of 5.8% annually from 2011–15. Southeast Asia’s largest economies, Indonesia, Malaysia, the Philippines, and Thailand, along with Vietnam and Singapore, had a 2010 combined gross domestic product (GDP) at purchasing power parity of approximately $3 trillion, equivalent to nearly three-fourths of Japan’s and one-third of China’s economies.
“Despite this large market base, the region remains relatively untapped and underserved. For example, in Indonesia, which is the fourth most populous country in the world after China, India, and the United States, industries such as automotive and banking still have low penetration; most people do not own a car, nor can it be assumed that they maintain bank accounts or use credit cards.
“Part of Southeast Asia’s large market potential emanates from its rapidly growing middle class. In Indonesia, for example, the middle class comprises approximately 40% of the population, or more than 90 million people. Within the next four to ten years, this block of consumers is expected to grow to more than 150 million.
“Along with its climbing numbers, the middle class has experienced a rapid income rise. Within the next decade, some 58% of households in Indonesia are expected to have annual disposable income between $5,000 and $15,000; currently, approximately one-third of Indonesian households have disposable incomes within this range. More importantly, this newly “rich” middle class is spending their disposable income. Growth of the middle class and its income are generating increased demand for more technologically advanced products and services.”
Also stoking Southeast Asia’s emergence has been the actions of the various nation states to open the door to investments. According to the report:
“Recent government deregulation and liberalisation have amplified current market interest. Southeast Asian countries are sending the message that they are open for business. The World Bank reported in its 2012 Doing Business in a More Transparent World study that Indonesia, Malaysia, Thailand, the Philippines, and Vietnam have instituted reforms intended to make it easier to start businesses, enforce contracts, protect investors, and resolve insolvency. Governments in the region have continued to lower trade barriers and tariffs over the last five years, while negotiations progress toward a free-trade agreement with the European Union.” [SSgA launches SPDR Citi Asia Local Government Bond ETF]
For investors looking to gain exposure to Southeast Asia, there are a number of country and regional ETFs to consider. All the ETFs profiled below are London-listed (except where stated), while many have cross-listings on other European exchanges such as Xetra, Euronext, Borsa Italiana and SIX Swiss.
The “fastest five”:
HSBC MSCI Indonesia ETF (HIDR) TER 0.60%
DB X-trackers MSCI Indonesia TRN Index ETF (XMID) TER 0.65%
The MSCI Indonesia TRN Index is a free float-adjusted market capitalisation index reflecting the performance of the Indonesian market by targeting all companies with a market capitalisation within the top 85% of the Indonesian investable equity universe. Currently has 25 holdings.
DB X-trackers MSCI Malaysia TRN Index ETF (XSX3) TER 0.50%
HSBC MSCI Malaysia ETF (HMYR) TER 0.60%
The MSCI Malaysia TRN Index is a free float-adjusted market capitalisation index reflecting the performance of the Malaysia market by targeting all companies with a market capitalisation within the top 85% of the Malaysia investable equity universe. Currently has 42 holdings.
DB X-trackers MSCI Philippines TRN Index ETF (XPHG) TER 0.50%
The MSCI Philippines TRN Index is a free float-adjusted market capitalisation index reflecting the performance of the Philippines market by targeting all companies with a market capitalisation within the top 85% of the Philippines investable equity universe. Currently has 40 holdings.
DB X-trackers MSCI Thailand TRN Index ETF (XCX4) TER 0.50%
The MSCI Thailand TRN Index is a free float-adjusted market capitalisation index reflecting the performance of the Thailand market by targeting all companies with a market capitalisation within the top 85% of the Thailand investable equity universe. Currently has 21 holdings.
DB X-trackers FTSE Vietnam Index ETF (XFVT) TER 0.85%
The FTSE Vietnam Index comprises those companies of the FTSE Vietnam Index that have sufficient foreign ownership availability. The FTSE Vietnam Index provides a broad coverage of the Vietnamese equity market and is a Total Return Index. Currently has 24 holdings.
For broader regional exposure:
The following four funds track the MSCI Emerging Markets Asia Index (MSCI EM Asia). The MSCI EM Asia is a free float-adjusted market capitalisation index reflecting the performance of the equity markets of the Asian emerging market countries. The index is consisted of constituents out of the following 9 countries: China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Taiwan and Thailand.
Amundi ETF MSCI EM Asia (AASI) TER 0.45%
DB X-trackers MSCI EM Asia TRN Index ETF (XMAS) TER 0.65%
SPDR MSCI EM Asia ETF (EMAS) TER 0.65%
Credit Suisse ETF (IE) on MSCI EM Asia (CEA1) TER 0.65%
The following fund from HSBC tracks the MSCI Emerging Market Far East Index. The MSCI EM Far East 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.
HSBC MSCI EM Far East ETF (HMFE) TER 0.60%
The following fund from RBS tracks the market-capitalisation weighted DAXglobal Asia Index. This index replicates the performance of the 40 largest stocks from emerging East Asia. Every country is represented according to its economic performance, whilst the maximum number of companies per country is limited to 12. Constituents are from the following countries: China (inc HK), India, South Korea, Taiwan, Indonesia, Thailand, Malaysia, Singapore and the Philippines.
RBS Market Access DAXglobal Asia Index ETF (M9SF) TER 0.65% Xetra-listed (registered in UK)
(For a copy of the PwC report, please visit: The Southeast Asian tigers roar again: this time for real)