I’ve been getting a lot of questions on investing in emerging markets recently. The thinking of course, is that with the Feds on a rate cut cycle, this will lead to capital outflows from the US and into emerging markets. Not only that but a US rate cut cycle allows emerging markets central banks to […]
The post Will I Invest in Emerging Asia when Interest Rates are Falling? appeared first on Financial Horse.
I’ve been getting a lot of questions on investing in emerging markets recently.
The thinking of course, is that with the Feds on a rate cut cycle, this will lead to capital outflows from the US and into emerging markets.
Not only that but a US rate cut cycle allows emerging markets central banks to cut interest rates – further juicing their economic growth.
Coupled with all the structural tailwinds such as healthy demographics and higher growth rates, this could be pretty bullish for emerging markets in 2025.
One common problem with emerging markets has been the difficulty for a retail investor to get broad based exposure.
Many of these stocks are listed on their home exchanges, not easy for a Singapore retail investor to buy.
So when I heard that Lion Global Investors was launching a new ETF focusing exclusively on emerging Asian markets (i.e., India, Indonesia, Thailand and Malaysia), I was pretty keen to take a closer look.
Disclosure: This post is sponsored by Lion-Global Investors. All views and opinions expressed in this post are from Financial Horse.
This ETF is managed by Lion Global Investors, one of the largest asset managers in Southeast Asia (total AUM is S$71.3 billion as of 30 September 2024).
They’re part of Great Eastern Holdings and a member of the OCBC Group and have a pretty long track record with ETFs in Singapore (listed 3 ETFs within 18 months between 2020 to 2022; listed 2 ETFs within 1H2024).
Lion Global Investors is also ranked among SGX’s top 4 ETF issuers by AUM.
You may know them for 2 of the top 3 ETFs on the SGX – Lion-Phillip S-REIT ETF and Lion-OCBC Securities Hang Seng TECH ETF:
The Lion-China Merchants Emerging Asia Select Index ETF focuses on 4 countries:
- India
- Malaysia
- Indonesia
- Thailand
Also known as “IMIT” for short.
Why these 4 countries?
Well in some ways these countries offer the most attractive growth / demographic profile in Asia today, to the extent they may be viewed as Asian Tigers 2.0
But more on this later.
The ETF tracks the “iEdge Emerging Asia Select 50 Index”, which is made up of the 50 largest (and most tradable) companies in India, Malaysia, Indonesia and Thailand.
The ETF is rebalanced on a semi-annual basis, in March and September.
You can see the asset allocation below.
India is the biggest allocation at 33.5%, followed by Indonesia at 21.8%, then Thailand (16.2%) and Malaysia (13.9%).
Industry-wise the largest is the Finance industry at 39.5% followed by technology at 14.2%.
The top 20 index constitutes are set out below, to give you an idea of what you would be buying into.
Since the index’s launch date (19 July 2024), its performance is actually pretty strong.
Its 2024 year-to-date return since inception is 5.48%, outperforming both the benchmark MSCI Emerging Markets and MSCI Emerging Markets Asia Index.
Let us start with what I like about Lion-China Merchants Emerging Asia Select Index ETF.
First off – structurally there are a lot of reasons to be bullish on these four countries – India, Malaysia, Indonesia, Thailand.
As emerging Asian markets, these countries by their very nature may hit levels of growth that developed markets like US or Singapore cannot achieve.
Source: Goldman Sachs Research Projections as of 22 June 2023
Note: DM refers to developed markets and EM refers to emerging markets.
And demographically, these countries remain very young, without the ageing population issues facing more developed countries.
India in particular has very favourable demographics, and many analysts have compared India today to where China was 20 years ago before the massive development boom.
I know many FH readers are very bullish on India as well, as I have been getting many questions for my views on India and how best to invest in India – and this ETF offers one potential way.
Coming back to the topic of growth.
Some analysts project Indonesia’s GDP to potentially double in the decade ahead.
Double.
Sure maybe the actual returns are slightly lower, but would anybody dare to make such a forecast for a developed economy like, US, Singapore or China?
Point is that with emerging Asia, you’re getting exposure to potentially very high levels of growth.
On top of the structural reasons to like these 4 countries (IMIT).
There are also tactical reasons to be bullish on IMIT at this point in the cycle.
For the simple reason that the Feds are on a rate cut cycle.
US rate cut cycles are historically bullish for emerging Asia, as they spark an outflow of capital from the US into Emerging Markets (boosting investment, asset prices, and strengthening FX).
At the same time, the US rate cut cycle also allows emerging Asia central banks to cut interest rates without fear of currency depreciation, further boosting domestic economic growth.
This can turn into a virtuous cycle for emerging Asia, where stronger economic growth leads to higher asset prices, attracting more capital inflows, further boosting asset prices and FX.
*Note: GDP refers to Gross Domestic Product.
Source: World Data as of 28 June 2024.
A lot of you have been asking me how to build exposure to emerging Asia to play this Fed rate cut theme.
Well – this Lion-China Merchants Emerging Asia Select Index ETF is one potential option.
This ETF is a collaboration between Lion Global Investors and China Merchants Fund Management, and the world’s first emerging Asia ETF traded in SGD.
It also gives you pretty broad geographical diversification to 4 countries (India, Malaysia, Indonesia, Thailand), all in one ETF.
It’s not easy to DIY and replicate an asset allocation like this, especially for things like the India onshore exposure (and it’s rare to find an ETF that purely focuses on IMIT, as many other Asia ETFs will include China / Taiwan exposure).
One risk to bear in mind though, is that you are investing in emerging markets, which by its very nature tends to be more volatile than developed markets.
This is both a good and a bad.
The good is that when the cycle goes up, you can make huge returns on the upside as stock prices go up, and FX strengthens in a virtuous cycle.
The bad is that if (when) the cycle turns, you are exposed to downside risk on both stock prices and FX.
Political risk is another potential concern, as a change in the ruling party can potentially lead to volatility for that country’s stocks
Although that said sometimes this could be a good thing if the new party is pro-business – just look at how Malaysia stocks have performed under Anwar:
Source: Trading View, as of 2 November 2024
Management fee is 0.80% per annum.
This may seem high, but to be fair the underlying exposure is across multiple exchanges (India, Malaysia, Indonesia, Thailand, US) and not so easy to replicate, so this does justify the fees to a certain extent.
The way I see it, this ETF is a great option for investors who want to gain exposure to Emerging Asia, and do not want the hassle of stock picking.
The challenge with stock picking is that most investors just do not know enough about these countries to meaningfully engage in stock picking.
And if you buy an ETF, most Emerging Asia ETFs will include Taiwan or China exposure.
It’s frankly quite rare to find an ETF that focuses exclusively on these four countries – India, Malaysia, Indonesia, Thailand.
So for investors who want the exposure to these four countries, in a simple and fuss free ETF form, I think this is a pretty attractive option to consider.
The initial offer period is from 25 November to 6 December 2024.
During this time, you can subscribe for the ETF via OCBC ATMs, Mobile and Online Banking, or any of the brokers below.
For OCBC ATM, Online and Mobile Banking customers:
- S$2 application fee waived.
For POEMS customers:
- Get S$20 cash credits for every 10,000 units subscribed before 5 December 2024, 5pm.
Limited to S$500 cash credits per customer. For the first 100 customers. T&Cs apply.
Find out more about the Lion-China Merchants Emerging Asia Select Index ETF here!
Disclaimers:
The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stock broker or financial advisor.
Disclosure: This post is sponsored by Lion-Global Investors. All views and opinions expressed in this post are from Financial Horse.
Disclaimer – Lion Global Investors Limited
This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. It is for information only, and is not a recommendation, offer or solicitation for the purchase or sale of any capital markets products or investments and does not have regard to your specific investment objectives, financial situation, tax position or needs. You should read the prospectus and Product Highlights Sheet of the Lion-China Merchants Emerging Asia Select Index ETF (“ETF”), which is available and may be obtained from Lion Global Investors Limited (“LGI”) or any of the its distributors and appointed Participating Dealers (“PDs”), for further details including the risk factors and consider if the ETF is suitable for you and seek such advice from a financial adviser if necessary, before deciding whether to purchase units in the ETF.
Investments in the ETF are not obligations of, deposits in, guaranteed or insured by LGI or any of its affiliates and are subject to investment risks including the possible loss of the principal amount invested. The performance of the ETF is not guaranteed and, the value of its units and the income accruing to the units, if any, may rise or fall. Past performance, payout yields and payments, as well as, any prediction, projection, or forecast are not necessarily indicative of the future or likely performance, payout yields and payments of the ETF. Any extraordinary performance may be due to exceptional circumstances which may not be sustainable. Dividend distributions, which may be either out of income and/or capital, are not guaranteed and subject to LGI’s discretion. Any such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value of the ETF. Any references to specific securities are for illustration purposes and are not to be considered as recommendations to buy or sell the securities. It should not be assumed that investment in such specific securities will be profitable. There can be no assurance that any of the allocations or holdings presented will remain in the ETF at the time this information is presented. Any information (which includes opinions, estimates, graphs, charts, formulae or devices) is subject to change or correction at any time without notice and is not to be relied on as advice. You are advised to conduct your own independent assessment and investigation of the relevance, accuracy, adequacy and reliability of any information or contained herein and seek professional advice on them. No warranty is given and no liability is accepted for any loss arising directly or indirectly as a result of you acting on such information. The ETF may, where permitted by the prospectus, invest in financial derivative instruments for hedging purposes or for efficient portfolio management. The ETF’s net asset value may have higher volatility as a result of its narrower investment focus on Emerging Asia countries, when compared to funds investing in developed markets. LGI, its related companies, their directors and/or employees may hold units of the ETF and be engaged in purchasing or selling units of the ETF for themselves or their clients.
The units of the ETF are listed and traded on the Singapore Exchange Securities Trading Limited (“SGX-ST”), and may be traded at prices different from its net asset value, suspended from trading, or delisted. Such listing does not guarantee a liquid market for the units. You cannot purchase or redeem units in the ETF directly with the manager of the ETF, but you may, subject to specific conditions, do so on the SGX-ST or through the PDs.
© Lion Global Investors Limited (UEN/ Registration No. 198601745D). All rights reserved. LGI is a Singapore incorporated company and is not related to any corporation or trading entity that is domiciled in Europe or the United States (other than entities owned by its holding companies).
Disclaimer – Singapore Exchange Limited for iEdge Emerging Asia Select 50 Index
The units of the Lion-China Merchants Emerging Asia Select Index ETF are not in any way sponsored, endorsed, sold or promoted by the Singapore Exchange Limited (“SGX”) and/or its affiliates and SGX and/or its affiliates make no warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the iEdge Emerging Asia Select 50 Index and/or the figure at which the iEdge Emerging Asia Select 50 Index stands at any particular time on any particular day or otherwise. The iEdge Emerging Asia Select 50 Index is administrated, calculated and published by SGX. SGX shall not be liable (whether in negligence or otherwise) to any person for any error in the Lion-China Merchants Emerging Asia Select Index ETF and the iEdge Emerging Asia Select 50 Index and shall not be under any obligation to advise any person of any error therein.
Intellectual property rights in the iEdge Emerging Asia Select 50 Index vest in SGX. The iEdge Emerging Asia Select 50 Index is used by Lion Global Investors Limited under licence.
Disclaimer – China Merchants Fund Management Company Limited
The references to the company name and logo of China Merchants Fund Management Company Limited in this material do not constitute a guarantee by China Merchants Fund Management Company Limited of the authenticity, accuracy and completeness of the relevant content, nor do they constitute a judgment or guarantee by China Merchants Fund Management Company Limited of the investment value and performance of the Lion-China Merchants Emerging Asia Select Index ETF. China Merchants Fund Management Company Limited assumes no liability for this material or the investors’ investment in the Lion-China Merchants Emerging Asia Select Index ETF.
I’ve been getting a lot of questions on investing in emerging markets recently. The thinking of course, is that with the Feds on a rate cut cycle, this will lead to capital outflows from the US and into emerging markets. Not only that but a US rate cut cycle allows emerging markets central banks to
The post Will I Invest in Emerging Asia when Interest Rates are Falling? appeared first on Financial Horse.
