Asia is one of the most promising regions in the world. Its pro-growth policies have shaped many economies over the last half a century. We discuss how to invest in the stock markets of Asia.
- Reasons to Invest in Asian Stock Markets
- Asia or APAC?
- Exchange-Traded Funds
- Most Important Stock Market Indices in Asia
- Diversification by Country
- Diversification by Sector
Reasons to Invest in Asian Stock Markets
Global financial markets offer almost endless investment opportunities. Almost all countries, sectors and types of companies are represented.
If we wanted to divide the global stock market into 4 different blocks, we would probably end up with North America, Europe, Asia, and Emerging Markets. Notice that there is some overlap between these blocks.
North America is heavily dominated by US tech companies. It has historically been the market with the greatest returns. But its stock market is also one of the most expensive in the world. At the same time, the US is not immune to economic and political problems.
For its part, Europe is the region of the developed world that has experienced the lowest economic growth since the 2008 financial crisis. As a consequence of that, stock market returns over the last two decades have been disastrous. Europe is likely to face severe difficulties in the future. The mix of high public debts, a monetary union, an aging population, and anti-growth policies cannot make us optimistic.
Emerging countries are considered riskier but offer greater long-term potential. These places usually enjoy high growth rates. Most of them are carrying out reforms with the goal to boost economic development.
Finally, Asia has been at the forefront of pro-growth policies for the last half a century. Many Asian countries can be used as examples of economic success since the middle of the 20th century. And the trend continues into the 2020s.
Asia has both highly developed and emerging countries. And anything in between. But almost all these heterogenous economies have one goal in common: long-term economic growth. And therein lies one of its strengths. This makes Asia and its stock markets one of the most promising places for us to invest.
Asia or APAC?
Many investors choose to invest their money in the broad Asia-Pacific region, as opposed to just Asia.
Thanks to that, they also include the countries in Oceania. For practical purposes this means including Australia and New Zealand. Two Western countries, already developed, and with better fundamental data and demographics than either North America or Europe.
In addition to that, Australia has abundant natural resources. Because many Asian countries do not have many natural resources, including Australian stocks to our Asian portfolio offers very good diversification benefits.
For this reason, it is interesting to see how we can invest in the stock markets of both Asia and the Asia-Pacific region.
If you are wondering how to invest in Asian stock markets, the easiest way is through ETF funds. While we can choose individual stocks ourselves, passive investing is simpler and usually yields higher returns in the long term.
Let us not forget that this is a very heterogeneous region of the world. Therefore, becoming familiar with all these countries and their most important companies would be a big task.
There are plenty of Asia-Pacific ETFs available on the market. Most of them with very low management fees. In the next section, we discuss the most important indices in the region, so you can look for ETFs tracking them.
Most Important Stock Market Indices in Asia
When investing in Asia, we can go for indices that exclusively track one country, or indices that include several countries in the region:
- Japan: TOPIX or Nikkei 225
- China: CSI 300
- Hong Kong: Hang Seng
- South Korea: KOSPI
- Singapore: Straits Times
- Taiwan: TAIEX
- India: S&P Sensex 30
- Thailand: SE THAI
- Indonesia: Jakarta Composite
- Philippines: PSEi Philippine
- Malaysia: FTSE Malay KLCI
- Australia: S&P/ASX 200
- New Zealand: NZX 50
Diversification by Country
If we choose to invest in an ETF that tracks an index that includes several countries, it is interesting to know which countries it includes and the weight each country represents within the index.
Let us look at the country weights in the MSCI AC Asia Pacific:
Diversification by Sector
By the same token, it is also important and interesting to learn about the weights that the different economic sectors represent in the index. This is what the chart below indicates for the MSCI AC Asia Pacific stock market index:
Investing in Asian stock markets is a very interesting proposition, and we have discussed how to do it. Remember that the secret of long-term investing is to choose assets and markets with positive expected returns. We can then be patient and wait for our investments to grow while we continue to monitor the situation.
If you want to read about the most important stock market indices in various countries, check out this section:
Funds and ETF
I also encourage you to subscribe to my newsletter:
Comments are closed.