“In the 19th century, the world was Europeanized. In the 20th century, it was Americanized. Now, in the 21st century, the world is being irreversibly Asianized.” ~ Parag Khanna, author, The Future Is Asian.
One word common to the Himalayas, the Thar Desert (aka the Great Indian Desert), Great Wall of China, the Taj Mahal, the skyscrapers of Singapore and monasteries in Bhutan – is Asia.
Asia is home to a vast swathe of religions, languages, festivals, ethnicities, climates, demographics and forms of government. Even in terms of economic progress, there is a wide variation among nations; a few countries are advanced, some are considered emerging and the rest less developed. Despite the varying pace of growth, these economies continue to move forward, making the overall trajectory go upwards for the region. During 2019, Asia remained the fastest-growing region in the world, accounting for more than two-thirds of global growth.
Asia has witnessed rapid industrialization and urbanization in recent decades. This has helped these countries to lift millions out of poverty and move towards building nations with good infrastructure, education, health and sanitation, and achieve a higher standard of living.
Today, many of these nations are ranked among middle-income and even advanced economies by the World Bank. The share of Asia in the global GDP has been rising. Asia accounted for one-third of the world’s GDP in 2000 (in terms of purchasing power parity), accounts for 42% presently and is expected to rise to more than 50% by 2040 according to a report.
Over the years, these economies have established themselves on the world trade map; the share of Asia in the world’s total exports has risen significantly over the years. A WTO report highlights that Asian nations are playing an increasingly major role in the global value chains. The region has a diverse landscape in terms of industries and corporate setups, with different nations having a competitive edge in a different sector. Overall, companies across Asia are adding $19 trillion in revenue to the world economy every year, and now account for 43% of the world’s largest 5,000 companies, according to a January 2020 report. This is huge given that this is the biggest contribution by any single region.
Here’s an overview of the ETFs which the U.S. investors can consider for diversifying their portfolios with Asian exposure.
Launched in 2011, the iShares Edge MSCI Min Vol Emerging Markets ETF (EEMV) tracks the MSCI Emerging Markets Minimum Volatility Index and is characterized by having lower volatility characteristics vis-à-vis the broader emerging equity markets. Each of the minimum volatility index from MSCI is calculated by optimizing a parent MSCI index to produce an “index with the least volatility for a given set of constraints and to ensure index replicability and investability.” The fund offers exposure to Asian markets across countries like China, Taiwan, India, Thailand, South Korea, Malaysia, Saudi Arabia, Indonesia, and the Philippines, among others. China and Taiwan have the highest exposure followed by India. In terms of sectors, financials, communications, consumer staples and information technology add up to around 62% allocation. The portfolio is spread across 350 stocks with the top ten holdings adding up to roughly 13%, they include:
- First Financial Holding
- Bank Central Asia
- Taiwan Cooperative Financial Holding
- Guangdong Investment
- Chunghwa Telecom
- China Mobile
- Taiwan Mobile
- Far EasTone Communication
- Taiwan Semiconductor Manufacturing
- Public Bank
Next is the iShares MSCI All Country Asia ex Japan ETF (AAXJ). This is an Asia focused ETF providing exposure to large and mid-sized companies in emerging and developed countries in the region (excluding Japan). The fund was launched in August 2008, and currently has $4.15 billion as assets under management and an expense ratio of 0.68%. The fund tracks the MSCI AC Asia ex Japan Index and has a portfolio of around 1,100 stock holdings. China, South Korea, Taiwan, India and Hong Kong are the top country holdings with additional allocations across Singapore, Thailand, Indonesia, Malaysia and the Philippines. The fund is diversified across eleven sectors with around 68% in the top four sectors. The fund’s top ten holdings add to 30%, they are:
- Alibaba Group Holdings
- Tencent Holdings
- Taiwan Semiconductor Manufacturing
- Samsung Electronics
- AIA Group
- China Construction
- Ping An Insurance
- Reliance Industries
- Housing Development Finance Corporation
- China Mobile
Launched in 2007, iShares Asia 50 ETF (AIA) provides a portfolio of the 50 largest stocks in the Asian markets. The fund has a concentrated portfolio in terms of countries as well as sectors and stocks; major part of its allocation (78%) being in China, South Korea, Taiwan, Hong Kong, and Singapore while sectors such as information technology, financials and communication add up to 79% allocation. With $1.25 billion as assets under management, the fund has an expense ratio of 0.50%. The fund has a high concentration ratio of 60% in the top ten holdings, namely:
- Tencent Holdings
- Samsung Electronics
- Taiwan Semiconductor Manufacturing
- AIA Group
- China Construction
- Ping An Insurance
- Industrial and Commercial Bank of China
- Meituan Dianping
- China Mobile
- SK Hynix
Overall, these funds are a good way to diversify internationally and benefit from the region which is growing at the fastest pace in the world and is expected to continue to do so.
Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in reporting are unintentional. Selection of funds based on Asia centric exposure and assets managed. Information based on fund factsheets and is as on January 24, 2020.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
