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Summary IShares Asia 50 ETF has lower valuation, when compared to ETFs from the Philippines, Indonesia, and Vietnam. Past financial performance, combined with low valuation, makes this a very conservative investment. Samsung Electronics was the only top fund holding to experience a decline in growth. The fund provides exposures to the economies of China, Taiwan, Hong Kong, and South Korea. Investors who do not prefer this simplified and diverse exposure to Asia, can investigate specific opportunities presented in South Korea and Taiwan. The iShares Asia 50 ETF (NYSEARCA: AIA ) provides investors with a simple solution to gain exposure to emerging Asia, with investment in South Korea, China, Taiwan, and Hong Kong. Its current valuation is extremely low, making it a favorable option for investment while its stability provides increased confidence for investors; there is less risk associated with inflation, exchange rate movements, and other risks associated with frontier markets. Emerging Asia is clearly more suitable area for investment, as emerging markets are projected to have higher growth rates than developed markets. Moreover, Franklin Templeton’s investment outlook for 2015 mentions that China and India will lead economic growth in Asia. Emerging markets provide the dual benefits of low risk and high growth opportunities, and Asia is certainly a very strategic site for investment. Stability and Growth Since the beginning of 2015, the fund has had excellent performance, with an YTD return of 7.42%. What makes this fund even more attractive is that the fund’s current valuation is extremely low, given the countries that it invests into. The iShares Asia 50 ETF has lower valuation, when compared to ETFs in the Philippines, Vietnam, and Indonesia. Top 10 Holdings Growth of the fund’s top 10 holdings has been substantial, and produced the following results: Average growth in net revenue in 2014 was 12.18% Average growth in net income in 2014 was 20.13% The fund invests into favorable countries in Asia, which can be considered more stable and developed, relative to frontier markets in Asia. Although economic growth is comparatively slower in these countries, investment can be considered substantially more conservative, with less risk in areas such as inflation. The fund’s current 1-year return is only -0.10% , which is interesting to note considering the excellent financial performance of its holdings in 2014. Macroeconomic Outlook South Korea Outlook Considerable growth is still ahead for South Korea, and despite the IMF cutting the GDP growth forecast for 2015 and 2016 , it is still favorable at 3.7% and 3.9% respectively. Consumer spending is anticipated to grow by 1.2% by the 2nd quarter of 2016, and growth in retail sales is expected to increase to 5.4% by the 2nd quarter of 2016. Annual GDP growth in South Korea dropped from 3.4% in July of 2014 to 2.7% in the beginning of 2015; the correlation between this and the performance of the iShares MSCI South Korea Capped ETF (NYSEARCA: EWY ) is clear, as well as the implications of the increased growth forecast for the rest of 2015 and 2016. EWY data by YCharts Despite South Korea’s favorable outlook, the poor performance of Samsung Electronics in 2014 is a huge area of concern, as this company was the only company in the fund’s top 10 holdings to have a loss in net income and net revenue in 2014. Samsung is losing its market share in China and India, the 2nd and 3rd largest smartphone markets. While the economic outlook in South Korea is overall favorable, Samsung Electronics is suffering from its lost dominant position in China and India. Taiwan Outlook Annual GDP Growth in Taiwan is projected to remain unchanged at 3.37% . June was a challenging month for Taiwan, as a record drop of 13.9% YOY in exports put a temporary strain on the country. The forecast for exports in the 4th quarter of 2014 provides favorable results; exports will increase by 6.4% . EWT data by YCharts Recovery in the growth of exports in Taiwan presents a short-term buy opportunity for investors, as revenue from exports is a key driver for Taiwan’s economy. China Outlook Slowed economic growth in China can still be classified as high and acceptable growth. Annual GDP growth is anticipated to decline from its current 7% to 6.6% in the 2nd quarter of 2016. Growth in retail sales are projected to decline to 9% by the 2nd quarter of 2016 while consumer spending is expected to grow at a moderate rate of 5.1% by the 2nd quarter of 2016. While stocks in China have been criticized for being in bubble and soaring to irrational highs, the fundamentals of the specific holdings in this fund are solid; net revenue increased by 11.4% while net income increased by 18.7%. Hong Kong Outlook Slight growth in GDP is ahead for Hong Kong, as annual GDP growth is anticipated to rise from its current 2.1% to 2.8% during the 2nd quarter of 2016. Consumer spending is projected to increase by 4.8% by the 2nd quarter of 2016, and retail sales are expected to increase 5.31% in the 2nd quarter of 2016. The fund provides exposure to Hong Kong’s financial services industry, which is one of the key industries in Hong Kong, attributing to 16.5% of the country’s GDP . During 2014, the fund’s holdings in this industry had a 17.8% increase in net revenue and 33.15% increase in net income. The overall sentiment for Hong Kong is very positive, and the fund’s holdings are an accurate demonstration of this potential. Conclusion Investing in the iShares Asia 50 ETF is a simple solution for investors to gain exposure to the higher projected growth in emerging markets, specifically found in Asia. An Albert Einstein quote can summarize this scenario: “Everything should be made as simple as possible, but not simpler.” Diverse exposure to the economic growth of China, Taiwan, Hong Kong, and South Korea provides ample potential for high returns; its low valuation makes this even more inevitable, as it is cheaper than ETFs in Vietnam, the Philippines, and Indonesia. Investors who prefer further dissecting opportunities within this fund, and believe this investment objective is too simple, can specifically investigate the options presented in Taiwan and South Korea. Despite varying investment objectives, the growth of emerging markets, specifically spearheaded by Asia, will inevitable be superior in growth to all other markets. This can be accessed via the iShares Asia 50 ETF. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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