Beyond Chindia
Asia is more than a play on China and India and,
while the wait may be a long one, investors see
compelling opportunities in other parts of the region,
in both developed and so-called frontier markets
BY HELEN BURGGRAF
The simplest way to invest
in China and India’s muchballyhooed
growth over
the next decade is, of
course, to buy shares in
companies active in those
two countries, or to invest
in a fund or ETF comprised
of such equities.
Certainly there is no
shortage of such products,
and scarcely a week goes
by that some asset manager
somewhere is not
unveiling a new one.
Less obviously, though,
investors yearning for
exposure to the ‘Chindia’
growth story may also
explore the investment
options on offer in some of
the 14 or 15 countries that
encircle these two giants.
l Huge differences
These Asia ex-Chindia
countries, which include
South Korea, Taiwan,
Indonesia, Malaysia and
Australia, differ dramatically
in myriad ways.
Some are tiny, others
large; some are well-developed,
others barely have
electricity and roads. Many
are afflicted with political
problems, religious
tensions, poverty, environmental
issues and/or
corruption.
Cambodia is one of a
handful that does not even
have a stock market yet,
though it plans to open one
next year. Sri Lanka, meanwhile,
has suffered from
a civil war that Aberdeen
Asset Management’s
Singapore-based Asia guru
Hugh Young notes has
until now kept it “from
fulfilling its potential”.
Nevertheless, Young
and other experts who are
active in the region say
a number of the Asia ex-
Chindia countries do share
one single, important characteristic:
they possess significant
investment potential
for those who know
what to look for.
This conviction is evident
in the composition
of their funds, as well as
those of their rivals.
For example, Hong
Kong and Singapore –
rather than India and China
– are the number one and
two countries in which
Aberdeen’s £1.5bn Asia
Pacific Fund was invested
at the end of October.
India was the fund’s thirdmost
invested-in market,
followed by Australia and
South Korea.
China was only in sixth
place, with a 5.6% share
of the portfolio, compared
with Hong Kong’s 22% and
Singapore’s 20% share.
Moreover, Young says
he is keeping an eye on
countries such as Vietnam,
even though he admits it
is “probably going to be a
while before you see it in
our mainstream regional
funds”, owing to its deter-
minedly frontier status.
Tony Hann, head of the
emerging market equities
operation at Blackfriars
Asset Management, one of
Bank of New York Mellon’s
boutique asset management
companies, is another
long-term monitor of the
Asia ex-Chindia scene.
l Export destinations
Hann, who has spent more
than 20 years investing in
emerging markets, says
Asia normally accounts for
around 50% of Blackfriars’s
$1bn worth of global emerging
market funds portfolios,
with roughly half of this
Asia portion being invested
among some of the Asia
ex-Chindia countries.
“Historically, these Asia
ex-Chindia economies
have been export-led, selling
to such developedworld
markets as the US
and Europe, and they will
continue to do so, and do
so very well,” he says.
“But over time, because
China and India will
continue to grow quite
strongly, and also because
between them they
account for nearly half the
world’s population, their
importance to the other
Asian economies – to the
Asia ex-Chindia economies
– will increase.”
For now, such exporting
countries as Korea and
Taiwan have looked to
China in particular as a
EQUITIES ASIA EX CHINDIA
Asia ex Chindia
ASEAN funds vs indices – 1 year
-20
Dec ’08 Feb ’09 Apr
Source: Morningstar
ASEAN funds vs indices – 3 years
120
100
China equity funds
80
60
% 40
20
0
ASEAN funds
India equity funds
-20
-40
MSCI World
Dec ’06 May ’07 Nov May ’08 Nov
Source: Morningstar
ASEAN fund performance
3 mths 6 mths 1 year 3 yrs 5 yrs 10 yrs
MSCI World 5.11 16.39 20.32 -1.82 3.49 -1.64
China equity funds 14.60 21.16 74.27 20.71 23.82 15.31
India equity funds 13.12 20.51 88.15 10.53 23.05 14.53
ASEAN funds
Source: Morningstar
7.36 22.65 67.51 10.82 15.44 7.85
JANUARY 2010 [www.portfolio-adviser.com] PORTFOLIO ADVISER
100
80
60
% 40
20
0
China equity funds
India equity funds
Jun
Aug
ASEAN funds
MSCI World
Oct
May ’09
Dec
Nov
41
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