The ASEAN Opportunity

Includes: ASEA, EWS, QQQ, THD, VNM
by: David Urban

Many investors are focused on the events in Europe, the slowdown in China, the 2012 Elections and slowing economic growth in the United States. But unbeknownst to most, there is a new trading bloc coming into being in 2015 comprising over 600 million people and $2 trillion dollars in GDP, the ASEAN (Association of Southeast Asian Nations) community. Investors looking to diversify outside of the NASDAQ and S&P 500 should turn their eyes to this vibrant and growing community of nations.

The ASEAN community is led by the nations of Singapore, Indonesia, Thailand, Philippines and Malaysia followed up with the emerging nations of Brunei, Laos, Vietnam, Cambodia and Myanmar.

The 10 countries that make up the ASEAN community are focused on creating a trade bloc that will eliminate tariffs and create a single trading bloc where goods, services and people can move effortlessly across borders.

While ASEAN nations only amount to 3% of world GDP and 7% of global trade, there is significant room for growth as countries like Cambodia, Laos and Myanmar upgrade their infrastructure and hop on the global growth track.

Countries like Singapore will see a boost in their banking and financial sectors. The banking sector is already seen as one of the strongest globally as Singapore banks emerged relatively unscathed in the wake of the 2008 financial crisis. Singapore capital markets have seen a strong influx of capital over the past two years as Indian and Chinese firms look to take advantage of their proximity to major emerging markets and strong manufacturing base.

Thailand will see additional benefits from the signing of a free trade agreement with Japan a few years ago. This established Thailand as an entry level manufacturing hub for Japan in addition to their reputation as one of the largest automotive and electronics manufacturing hubs in Asia.

One major benefit to the smaller emerging nations will be the integration of financial systems which will help capital flow to markets where it is needed most. Nascent capital markets in Laos, Cambodia and Vietnam will see an immediate boost in liquidity.

Although the ASEAN nations are mostly export focused with only 25% of total trade moving between the ASEAN nations, much smaller than 50% within NAFTA and 60-70% within the EU, there is tremendous room for growth. Many small to medium enterprises will benefit from the trade agreements as they find new expansion opportunities available where tariffs once held them back.

Investors can gain exposure to this region through a variety of ETF's available including the Global X FTSE ASEAN 40 ETF (NYSEARCA:ASEA) and country specific ETF's such as the Market Vectors Vietnam ETF (NYSEARCA:VNM), iShares MSCI Singapore Index Fund (NYSEARCA:EWS) and the iShares MSCI Thailand Investable Market Index Fund (NYSEARCA:THD).

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours. I am short the broad market in the U.S. and do own stock directly in a number of Thai companies.