Once upon a time, China was the low-cost manufacturing giant. Times have changed as China's population control policies have been effective, draining their once dense workforce. There aren’t as many people to fill jobs, or those willing to be paid a low wage for unskilled labor.
Also, as China’s economy has improved in recent years and continues to improve, more emphasis is being placed on skill and education. The skilled and educated are not willing to work for the same wages at the once popular manufacturing plants. In an effort to keep up with this change, the smart manufacturers are going high-tech. This means fewer workers at higher wages-- what is needed to keep up with the changing environment. The low-cost manufacturing jobs are now being switched to other densely populated emerging nations such as Taiwan, Indonesia, and Vietnam.
One of the best ways to profit from this change is through an ETF. The IQ Taiwan Small Cap ETF (TWON) leaves in its top holdings technology, manufacturing, and logistics corporations. This makes the fund a great way to stay ahead of this change in China’s environment. The opportunity is being passed on to other countries such as Taiwan, and so should investments. Right now this ETF with a yield of 2.27% is trading at a discount. The best time to invest in this small, densely-populated country would be a time when China is at a loss to keep up with its current manufacturing demand. Taiwan is poised to take over-- it already has a technological advantage.
Vietnam is also poised to take advantage of China’s declining workforce. The Market Vectors Vietnam ETF (VNM) is a nice way to hedge your bets on Vietnam’s future manufacturing success. Some of the firm’s top holdings include industry and trade companies. It is also currently trading below market value close to its 52 week low. Vietnam has a young, densely populated workforce-- similar to what China had once upon a time. In addition, VNM paid out a nice dividend at the end of last year. This is a great way to play this workforce shift that is forcing China to change its manufacturing game.
One other country poised to take over the low-cost manufacturing realm is Indonesia. The Market Vectors Indonesia ETF (IDX) puts financial services companies in its top holdings. The banks will be the ones lending the money to industry to build the manufacturing plants that house the workers and equipment for the low-cost manufacturing venture. Like TWON and VNM, it provides a decent dividend and is also trading near the 52 week low.
Due to the success of China’s population control program, its manufacturing industry must change. As the country makes the move toward high-tech and lower employee manufacturing, other countries will move to pick up their slack. Taiwan, Indonesia, and Vietnam have the resources and the densely populated workforce to do just that. This is what makes TWON, VNM, and IDX great plays on China’s declining population.