The Next Big Thing: Emerging Asia

By Daniel Harrison

Cris Sholto Heaton’s recent article on investing in the small Asian countries outside China and India brings a welcome change to the usual run-of-the-mill emerging markets coverage.

You can read the whole story here.

I’ve long been a big proponent of investing in so-called Asian frontier countries. As Cris points out, “These smaller countries complement China and India. They should benefit from the rise of their larger neighbors and the region as a whole, while offering exposure to different themes and sectors.”

In fact, when I talked to Franklin Templeton’s outgoing emerging market fund manager Mark Mobius earlier this year, he was in the process of putting more of his own personal money into these miniature high-growth markets (you can read that story here, but you’ll need to have access to Index Publications’ subscription-only monthly ETFR publication).

Cris highlights Vietnam as a location rich in the potential for returns. I think he’s right. After tumbling around 70 percent in value early last year, the market has staged a bit of a recovery so far this year, and stocks look attractive there now.

The Market Vectors Vietnam (NYSE: VNM) exchange-traded fund, which was launched only last month, is already up 12 percent. That’s the kind of dynamic place Vietnam is, with huge swings and wild statistics. What do you expect when half the population is under 25?

Indeed, one of the things that makes Vietnam so appealing right now is that it was only recently that the country took a dive. In emerging markets investing, you often find that a giant correction after a bubble brings with it all sorts of useful policy and financial innovations that, ultimately, lead to more stability and continued growth. This was the case with Thailand after 1997.

With that in mind, I found it unfortunate that Cris spent so much time discussing Malaysia and so little on Thailand. Thailand has gone through something of ruckus lately, with a militant left-wing government seizing power from a democratically elected right-wing one.

While it’s not exactly desirable to have a forced government in place, the country’s new prime minister, Abhisit Vejjajiva, is an impressive leader. Educated at Oxford University in England, Vejjajiva is a calmly spoken, economically sharp policymaker with a heavy international focus.

Unemployment in Thailand is now falling and gross domestic product growth is on course to climb again slightly. Property prices are rising, too, particularly in the south of the country and in Bangkok, its capital.

With the iShares MSCI Thailand Index Fund (NYSE: THD) up 76 percent year-to-date, just 16 percent below its 18-month-ago price of $50 a share, there’s good reason to believe that this ETF has found the support it needs to continue to outperform traditional emerging market benchmarks.

It’s often been said that Asian frontier markets are something of a 2010 story. With such impressive strength in large emerging markets this year, I think we are on course to hit that forecast.

Comments

[Paul Harper:]

Great timing for both these ETFs right now in my opinion, have been a long term holder of THD & added VNM a few weeks ago. Respectively, they equate to 1.5% & 1.2% of my long portfolio.
Vietnam is now a regional powerhouse with regards to Laos & Cambodia & large blue chips are seeing this as a good way to access these countries indirectly. Am also very interested in the new coffee programme as robusta is scaled back in favour of arabica, on top of government controlling land dedicated to cofee growing, it is a huge potential growth market.
As I have written on VNM elsewhere, telecoms is one of the sectors that will have huge growth, anyone looking at this market may want to look at VIP, which has also acquired Millicoms operations in Laos recently.

Sep 24 05:43 AM

[EconoMarcus:]

"After tumbling around 70 percent in value early last year, the market has staged a bit of a recovery so far this year, and stocks look attractive there now."

A bit of a recovery? Attractive now? Are you kidding? While I strongly believe in Vietnam's mid- and long-term potential I wouldn't be surprised to see a consolidation/correction phase in the nearer term. The VN-Index is up almost 150% since its low in February!

BTW: A better Vietnam ETF than the VNM is in my view the db x-trackers FTSE Vietnam ETF of Deutsche Bank, launched in January 2008 already. It's a Vietnam pure-play (unlike VNM, which invests in companies that "predominantly are domiciled and primarily listed in Vietnam and which generate at least 50% of their revenues from Vietnam" and "also includes non-Vietnamese
companies that generate, or are expected to generate, at least 50% of their revenues from Vietnam") and with a TER of 0.85% it is cheaper than Van Eck's ETF with capped expenses of 0.99% until 05/01/2010 and even higher after that. Also its sector weighting is quite different. So far it is listed in the UK, Germany, France, Italy, Switzerland, Singapore (Ticker XFVT or DXS7) afaik. It is up 158% since its low in February.

Anyway, here are the fact-sheets; compare the two ETFs:
www.vaneck.com/sld/van...
www.dbxtrackers.de/pdf...

Sep 24 09:20 AM

[Alan Young:]

Marcus, I like the DB fund also, in theory; but it's supposed to be off-limits to US investors (according to my broker, when I asked for it). I'm happy with VNM's performance so far, and they said they would add more local VN companies when more stock is available.

There are good alternatives to THD for US investors, though: closed-end funds TF and TTF, both trading at a nice discount.

Sep 24 03:18 PM

[EconoMarcus:]

Alan, re availability of the DB fund in the US: Yes, it is not listed in the US. But it depends on one's broker whether one has access to it or not. I have read that e.g. through Fidelity it can be bought easily on the London Stock Exchange. On the contrary if one's broker is e.g. TD Ameritrade she/he will not be able to buy it because they don't grant direct access to European or Asian markets. But as I know that there are also quite a lot of non-US readers/writers (like myself) here on seekingalpha I hope my comment is still useful to some. In any case: I think you'll be quite happy with VNM as well.

At least I hope VNM can keep it up. Usually I just like to pick a product that has a certain track record. VNM of course has non yet; the DB fund has about two years, not much either but at least something. In this case the one ETF with the (although short) track record is also the one with the lower TER, or in other words: lower fixed costs that will weigh less heavy on any future *real* performance. So understandably my preference was and is obvious. But then again: Van Eck has shown in the past that they can put together pretty good ETFs as well and I do not doubt that VNM will do well also.

Sep 24 08:51 PM

[MikeX:]

Some say while the US will be in a bear market, India will go through ocrrective declines and when US is having a bounce, India will have a bull market that could bring SENSEX to 100,000.

www.tradingstocks.net/...

Oct 03 11:58 AM