Must-know: Why investing in Asia requires due diligence

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Nov. 20 2020, Updated 4:52 p.m. ET

Investing in Asian equities

Asia has often been referred to as a land of opportunity. With its array of emerging and developing markets, the continent holds a lot of hope and promise for investors.

 

Investors increasingly park their capital in exchange-traded funds (or ETFs) tracking Asian securities like the iShares FTSE/Xinhua China 25 Index Fund (FXI), which is the largest ETF in the Asian-stock category and which tracks an index of the 25 largest and most liquid Chinese companies—including the major national oil company in China, CNOOC Ltd. (CEOHF). For investors seeking to gain from developed markets in Asia, the Vanguard Pacific ETF (VPL) offers an attractive avenue with the stocks of companies in Japan, Australia, South Korea, Hong Kong, Singapore, and New Zealand forming its portfolio. Investors seeking exposure to emerging market securities may prefer the iShares MSCI All Country Asia ex-Japan Index ETF (AAXJ), which measures the performance of 11 developed and emerging equity markets.

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When investing in Asia, you need to keep in mind that not all markets in Asia are in the developing mode. For example, Japan is the third largest economy in the world and is in a shrinking mode. On the other hand, the Chinese economy may have compounded well over the past several years, yet its equity markets have been among the poorest performing, mainly owing to a lack of quality investment-class companies.

India

India has its own story. The former CEO of Coca Cola (KO), Neville Isdell, in his book Inside Coca-Cola: A CEO’s Life Story of Building the World’s Most Popular Brand, has referred to India as “the most fascinating country I’ve ever worked in; and the most frustrating.” India remains a fascinating investment destination for many. The country’s growth seems quite promising, with around 560 million people under the age of 25. India’s favorable demographics give it an edge over China, where the one-child policy has taken a toll on the proportion of its working-age population. However, the political system is often what hampers growth in India.

But, with the recent change in government pursuant to the general elections and the business-friendly Narendra Modi swearing in as prime minister, we can expect the political clouds to clear up to allow productive investment in the country. For more on the change in India’s government, read the Market Realist series Must-know: Will India’s new government affect your portfolio?

ASEAN

Plus, the member countries of the Association of Southeast Asian Nations (or ASEAN), led by Indonesia, are promising—particularly as they seek to develop a common market goal by 2015 in order to create the ninth-largest global trading block. This does seem possible, as these nations represent a dynamic and young working class and a cost structure that beats even China.

Find out more about ASEAN in the next part of this series.

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