Tag Archives: asian

Take Your PIIC – Philippines, Indonesia, India Or China

Summary Consider to invest in Asia. Within Asia I believe the best countries to invest in are the Philippines, Indonesia, India, China and Vietnam. All have high growth driven by domestic consumption. All except China have incredibly low household debt to GDP compared to their Asian peers, which will allow them to easily borrow more and build more. The “Asian Century” has arrived and if you fail to invest in it you are missing an enormous long-term opportunity to grow your wealth. In this article, I discuss what I believe to be the top five Asian destinations for investment and why. But first, why invest in Asia? The answer is simply because it is growing more rapidly than any other continent on the planet. By 2030, Asia Pacific is estimated to contribute a staggering 59% of global consumption , up from 23% in 2009. Some key points from DBS on where Asia is heading in the next 25 years: · Asia adds a Germany (in economic terms) every 3.5 years, and will add three Europe’s in 25 years (by 2040), or if Asian currencies appreciate one to two percent pa (as is the norm for developing economies), Asia will add 5 or 6 Euro zones by 2040. · The Asian middle class is set to triple (to 1.8b) in size between 2015 and 2020, and to have increased 615% (6.15 fold) between 2009 (525m) and 2030 (3,228m). · China (59%) and India (16%) will dominate the Asian middle class. · For every addition to the US population, Asia’s headcount will rise by seven. · China’s growth is moving inland, and also towards Central Asia. · Capital will flow to Asia like never before. Why? Businesses want to be where the growth is. Ever hear one say different? In 2039, when Asia has added three Euro zones, it will be creating a Germany every seven months. That’s a pretty big attraction. Inflows mean currency appreciation. Asian currencies will rise against the dollar, euro and yen. · China’s per-capita energy consumption is one-eighth what it is in the US, India’s is one-twentieth. Rising incomes mean Asia’s energy demand will continue to soar. Asian, not G3 demand, will drive the price of energy. Source The World’s largest economies in 2010 and 2050 Source You can read more about the rising Asian middle class in my previous article here . Why Philippines, Indonesia, India and China? I choose these as my top 4 Asian countries to invest because they have high growth (domestic driven), low household debts (see chart below), and a rising middle class (with jobs and wage growth). The best time to buy is ideally when valuations are good (PEs below 15), or dollar cost averaging. Source No1- Philippines The Philippines’ main advantage is their cheap, young and skilled labour force with excellent English skills. The BPO industry is growing around 20% pa (it grew 18.7% in 2014). The Philippines is currently growing around 5.6% pa (with a long term growth rate estimated at 7.3% pa), with the main growth drivers being overseas foreign worker’s remittances, and the BPO (call centre, back office administration) industry. Tourism, manufacturing (electronics, ship building), mining and farming also contribute. This money is being channeled into the property sector, combined with increased lending (household debt is a mere 6% of GDP). Demographics are excellent with around half the population below 25, and salaries are rising at least 6.5% pa, or higher in the BPO industry where staff are paid sign on bonuses. The property boom can run for many years as pent up demand for housing is huge and prices are still low at just USD 3,156 psqm or less in Manila. The banks are making good net interest margins around 3.02 %, and growing their loan books 20% pa, with non-performing loans at a very low 1.8% and double digit profits. Investors can buy iShares MSCI Philippines ETF (NYSEARCA: EPHE ), currently on a PE of 21.17 as of 30 September 2015. No 2 – Indonesia Indonesia has a huge population with strong demographics, a rising middle class, and improving Government. Indonesia GDP was 5.0% in 2014, however it is expected to average 6.8% pa in the long term (see table below). Along with Philippines and India, it has very low household debt, and rising employment and wages. The new Government seems focused to reduce debt and build infrastructure. In October 2015, they announced a USD 5 billion high speed railway from Jakarta to Bandung in a JV with China Railway Group (00390:xhkg) (PE 10.1). Property prices are low at just USD 2,766 psqm, and rising . Investors can buy iShares MSCI Indonesia ETF (NYSEARCA: EIDO ), currently on a PE of 18.19 as of 30 September 2015. No 3 – China China is off course the booming manufacturing hub of the World, but is changing to be a more consumer led economy. This is causing a slowdown in fixed asset investment, and the so called “China slowdown” and “commodities rout”. Their GDP is currently 7.0% and slowing. Demographics and household debt levels are not so good; however, the rising middle class is still huge. The best way to play China is to buy into the consumer sector via a fund or individual stocks. A suitable fund would be db x-trackers CSI300 Consumer Discretionary 1D ETF. Chinese (Shanghai, Beijing) property is not as expensive as India (Mumbai), and is priced at USD 6,392 psqm. Investors can buy iShares MSCI China ETF (NYSEARCA: MCHI ), currently on a PE of 14.56 as of 30 September 2015. Another good choice is db X-trackers Harvest CSI 300 CHINA A-Sh ETF (NYSEARCA: ASHR ). No 4 – India India has perhaps the best growth potential but is expensive on current valuations (PE around 30), so best to wait for opportunity to buy in or average into the market over time. Current GDP is around 7.3% pa, and the long term average is expected to be around 8.0% pa. Indian labour is cheap with strong English and IT skills. Property is growing but expensive in the major cities such as Mumbai at USD 11,455 psqm, which may be a drag on the short term growth (as in China). By 2050, India is expected to be the World’s largest economy (see earlier table). Investors can buy iShares MSCI India ETF (BATS: INDA ), currently on a PE of 30.75 as of 30 September 2015. No 5 – Vietnam Vietnam is my preferred short-term pick as PEs are around 13, so great value now. Long term its prospects are also good, as it is a cheaper manufacturing hub to China and jobs are booming as a result. Household debt is low at around 20% to GDP. Investors can buy db x-trackers FTSE Vietnam ETF (GR). I would avoid Malaysia (household debt to income of 146% ) and Thailand (debt 121% ), based on high personal debts and economies that are heavily dependent on exports. Many frontier markets will also offer good returns for investors but perhaps at greater risk, so invest accordingly. Other high growth countries (listed below) to consider are Nigeria, Iraq, Bangladesh, Vietnam, Mongolia, Sri Lanka and Egypt. Source : Finally, for those that want something different, then consider to invest in either Pakistan (PE 9.2) via db x-trackers Pakistan (03106:xhkg), or Central Asia and Kazakhstan via Global X Central Asia & Mongolia Index ETF (NYSEARCA: AZIA ) (PE of 16.7), as China is pushing infrastructure and growth in that direction.

3 Southeast Asian Country ETFs Surging In October

The economic slowdown in China may be appalling for the Southeast Asian economies, but there is a flip side to it that actually spells opportunity. Years ago, leading manufacturing companies across the world had turned to China as a production base in order to take advantage of low-cost facilities and inexpensive labor. However, the trend seems to be changing at a fast pace due to the economic turmoil in the world’s second largest economy (read: Asia-Pacific ETFs to Watch on a Surprise Rebound ). Due to the massive growth that China has experienced in the past, its wages and manufacturing costs have grown sharply. Further, the country’s huge population base and rising disposable income of middle class have slowly turned the economy from production-based to consumer-based. It is for these reasons that international companies are becoming more inclined toward taking their labor-intensive manufacturing projects to Southeast Asian nations due to lower labor costs and their ability to handle sophisticated production on a large scale. With this, the companies will be able to cater to an increasing consumer base in China as well as to conventional markets such as Europe and the U.S. The industrial relocation is expected to result in huge foreign direct investment (“FDI”) inflow into these emerging economies. Asian Development Bank expects Southeast Asia to record a GDP growth of 4.6% in 2015 and 5.1% in 2016. This compares with a GDP growth of 2.7% in 2015 and 2.8% in 2016 for the U.S., and 1.5% in 2015 and 1.8% in 2016 for the Eurozone, per forecast of World Bank . Based on these strong economic fundamentals and recent developments, we turn our focus to three Southeast Asian country ETFs that have experienced double-digit gains since the beginning of this month (read: 4 Safe Ways to Invest in Emerging Market ETFs ). iShares MSCI Indonesia ETF (NYSEARCA: EIDO ) Indonesia is struggling with weakening demand from China and low prices of commodities such as palm oil and coal. However, a set of stimulus packages announced by its President Joko Widodo recently is expected to spur growth in this largest Southeast Asian economy. The stimulus measures range from cutting energy prices for companies and giving insurance to farmers against crop failures to giving access to subsidized loans to salaried workers for small business enterprises. Before this, the government has already tried to revive the economy by easing permit processing and stabilizing a weak rupiah. The government aims to achieve a GDP growth of 7% in 2017 through enhanced infrastructure spending and accelerated FDI inflow compared to its six-year low GDP growth of 4.7% for the first quarter of the year. EIDO tracks the MSCI Indonesia Investable Market Index, measuring the performance of Indonesian-listed equity securities in the top 99% by market capitalization. The fund is heavily biased towards financials, accounting for nearly 40% of its assets. It has gathered about $298 million in assets and trades in an average volume of 687,000 shares. The ETF charges 62 bps in investor fees per year and was up more than 25% since the beginning of this month (till October 13, 2015). It carries a Zacks ETF Rank #3 (Hold) with a High risk outlook. Notably, two other Indonesian ETFs also recorded double-digit gains (more than 20%) in the same time frame. They include the Market Vectors Indonesia Index ETF (NYSEARCA: IDX ) and the Market Vectors Indonesia Small Cap ETF (NYSEARCA: IDXJ ) . iShares MSCI Malaysia ETF (NYSEARCA: EWM ) Malaysia is another Southeast Asian economy falling prey to the commodity rout and slowdown in China (its largest trading partner). However, the recent trading data from the country spurred investors’ interest. According to data released by the Ministry of International Trade and Industry, the country’s trade surplus increased to 10.2 billion ringgit ($2.4 billion) in August from 2.4 billion ringgit ($0.6 billion) a month earlier. Exports rose 4.1% year over year while imports fell 6.1% from the year-ago level. Despite the China slowdown, exports to the country soared 32.4% year over year. Meanwhile, exports to the U.S. and the European Union escalated 12% and 13.5% year over year, respectively. The surge in exports can be attributed to its weakening currency. According to Datuk Seri Abdul Wahid Omar , Minister in the Prime Minister’s Department, Malaysia has compensated the loss in oil and gas revenues from the slumping crude oil prices to some extent by implementing the Good and Services Tax in April. Further, its debt level (currently 54% of GDP) is expected to decline given the rising investments from the private sector. EWM follows the MSCI Malaysia Index, which is highly focused on the country’s financials, industrials and consumer staples sectors. The fund has garnered roughly $320 million in assets and trades in a hefty volume of 1.7 million shares per day. It charges 49 bps in annual fees and was up 19.1% so far this month. The fund carries a Zacks ETF Rank #3 with a Medium risk outlook Market Vectors Vietnam ETF (NYSEARCA: VNM ) Vietnam’s economy has been benefiting from low energy costs and very low inflation. Last month, inflation dipped to zero for the first time ever, as per General Statistics Office. Inexpensive labor and devaluation of the Vietnamese dong for the third time in a year by the country’s central bank have also been boosting the country’s exports and attracting foreign investments. The recently enacted Trans-Pacific Partnership (TPP) deal is further expected to boost export demand for Vietnamese goods. Bloomberg data showed that the country’s exports went up 9.6% year over year to $120.7 billion in the first nine months of the year. In the same period, pledged foreign investment soared 53.4% while disbursed foreign investment rose 8.4% from the year-ago levels. According to Asian Development Bank, Vietnam is likely to record the fastest growth in 2015 among the five major Southeast Asian countries tracked by the bank. The growth would be driven by burgeoning private spending, rising exports and increasing flow of FDI. VNM tracks the Market Vectors Vietnam Index, measuring the performance of stocks listed in the Vietnamese stock index, which generates at least 50% of its revenues from within the local economy. The ETF’s holdings are mostly from the financial sector (44%). The fund has amassed nearly $467 million in assets and trades in a volume of 457,000 shares per day. It charges 76 bps in fees and has returned about 13.3% since the beginning of October. The fund carries a Zacks ETF Rank #4 (Sell) with a High risk outlook. Link to the original post on Zacks.com

4 Commodity Currency ETFs Outshining Dollar To Start Q4

The China-induced global economic uncertainties lashed out on the most risky asset classes to close Q3 and restrained the Fed from hiking key interest rates almost after a decade. Though the Fed attributed a wavering global financial market and a subdued inflation profile as the main cause for the deterrence of a lift-off, the sailing wasn’t smooth at home too. This was because the U.S. economy reported sub-par jobs data in September. The year-to-date monthly pace of job gains now averages 198K and the pace for the last three months was much lower at 167K. This compares with the monthly average of 260K for 2014. A weaker jobs report crushed all chances of a sooner-than-expected rate hike in the U.S., as it points toward slowing U.S. growth momentum. As a result, this latest bit of employment information stabbed the strength of the greenback which ruled the currency world for over a year and did magic for most commodities and the related ETFs to start of the fourth quarter. Dollar ETF PowerShares DB US Dollar Bullish ETF (NYSEARCA: UUP ) lost about 1.5% in the last 10 days (as of October 9, 2015) while most commodity-centric currencies turned out as surprise winners. Apart from the range-bound U.S. dollar, an oil price rebound following falling crude oil production, the commodities behemoth Glencore PLC’s ( OTCPK:GLCNF ) ( OTCPK:GLNCY ) announcement to close its supply of many actively traded commodities from zinc to copper and a slowly stabilizing Chinese market (which happens to be a foremost user of metals) boosted trading in commodities. Prior to this, commodities witnessed horrendous trading and it goes without saying that such huge and prolonged sell-offs have made the commodities’ valuation so cheap that any single driver would easily take the commodity currency ETFs to new heights. Though we believe the trend might tumble once the rising rate worries are back on the table, at the current level many investors may try to remove some of the dollar risk from their portfolio and focus on currency ETFs that are outdoing the dollar to start Q4: Below, we highlight four such currency funds that are shooting ahead of the greenback in October: WisdomTree Brazilian Real Strategy Fund (NYSEARCA: BZF ) – Up 6.1% Brazilian real was at a two-decade low at the end of September. But central bank intervention, easing political dispute over the budget, a subsiding lift-off and a commodity market bounce added to the real strength to start Q4. Since, Brazil is a commodity-centric economy, the recent surge in real is self-explanatory. Brazil’s Congress okayed most of the budget cuts, pension reforms and tax hikes planned by Rousseff’s government to contain spending and limit above-goal inflation. This fund seeks to achieve total returns reflective of both money market rates in Brazil available to foreign investors and changes in value of the Brazilian real relative to the U.S. dollar. Both AUM and average daily volume are paltry at $15.4 million and 20,000 shares, respectively. The product charges 45 bps in annual fees and is down 23.1% so far this year (as of October 9, 2015). It has a Zacks ETF Rank of 5 or ‘Strong Sell’ rating with a High risk outlook. However, the fund added over 6.1% in the last 10 days. WisdomTree Commodity Currency Fund (NYSEARCA: CCX ) – Up 4.5% This fund provides investors exposure to the currencies and money market rates of countries commonly known as commodity exporters. It seeks to achieve total returns reflective of both money market rates in select commodity-producing countries available to foreign investors and changes to the value of these currencies relative to the U.S. dollar. With this approach, investors can embark upon a variety of economies around the world. The product invests in eight currencies – Australian Dollar, Brazilian Real, Canadian Dollar, Chilean Peso, Norwegian Krone, New Zealand Dollar, Russian Ruble, and South African Rand – almost in equal proportions. The fund is often overlooked by investors as depicted by its AUM of just $6.3 billion and average daily volume of about 1,500 shares. It charges 55 bps in annual fees. The ETF was up 4.5% over the past 10 days. WisdomTree Dreyfus Emerging Currency Fund (NYSEARCA: CEW ) – Up 4.8% Thanks to the commodity strength, even emerging market currencies took the lead. Currently, the fund has a focus on Asian currencies (42%), followed by Latin America (25%) and Europe (17%). This currency ETF also sees solid volume of about 45,000 shares a day on comparable $57.1 million in AUM. CEW charges 55 bps in fees. CEW advanced about 4.8% in the last 10 days (as of October 9, 2015). Guggenheim CurrencyShares Australian Dollar Trust ETF (NYSEARCA: FXA ) – Up 4.3% This fund offers a great play to capitalize on the future rise in the Australian dollar relative to the U.S. dollar. It tracks the movement of the Australian dollar relative to the USD, net of the Trust expenses, which are expected to be paid from the interest earned on the deposited Australian dollars. The product has amassed $180.1 million in its asset base while trades in moderate volume of 45,000 shares per day on average. It has an expense ratio of 0.40% and was up 4.3% over the past 10 days. Original post .