Five top Asian ETFs

a couple of boys fishing

Asian stocks have been wobbly this week. A long-lasting trade war looks more likely after Trump imposed higher tariffs on Chinese imports, and concerns about debt levels in China haven’t gone away.

Elsewhere in Asia, Malaysia and the Philippines surprised markets by cutting interest rates last week – no doubt driven by concerns about future growth.

But there’s still a long-term case for investing in Asia. Over the next 20 years, Asian economies should grow more quickly than the likes of the UK, and there’s a decent chance that economic growth will be reflected in stock market growth too. (Be careful though, stock markets don’t always grow in line with their corresponding economies.)

Valuations for Asia aren’t too bad either. Here’s a table with the Shiller CAPE ratios for four leading Asian markets alongside three other markets for comparison.

Cape ratios

CountryCape ratioChina16.5Germany19.2India24.0Singapore16.9South Korea12.6UK18.3US30.1

Barclays 30/04/19

India is the only Asian market that looks obviously expensive at first glance, but given the country’s favourable demographics and economic reforms, perhaps the valuations are reasonable.

Which markets?

If you want to invest in Asia, you need to think about which markets you want to invest in. You could go for a single country or for a wider regional fund.

The majority of Asian ETFs exclude Japanese shares, presumably because Japan is seen as a more developed, and slower growing, economy than the rest of Asia. It’s also worth checking whether an ETF includes Australia, India, Singapore and Hong Kong. Australia, Singapore and Hong Kong are all developed markets whilst the Indian economy less developed than many Asian countries – especially China.

Let’s look at some of the best London-listed Asian ETFs.

Asia excluding Japan

  1. iShares MSCI EM Asia UCITS ETF

This ETF gives you exposure to 9 emerging market countries including India but excluding Australia. There are 885 companies in the index and it comprises about 85% of the markets in those countries by value.

Top 5 countries

Country% of ETFChina43.2South Korea17.0Taiwan15.8India12.2Thailand3.3

Clearly this ETF is heavily weighted towards China, so you need to be confident that you want exposure there. Four of the five largest holdings are Chinese businesses:

Top five companies

Company% of ETFTencent7.4Alibaba5.8Taiwan Semiconductor5.3Samsung Electronics4.5China Construction Bank2.1

Source: iShares 31/03/19

The annual charge is relatively high at 0.65% - Lyxor offers a much cheaper ETF that tracks the same index: the Lyxor MSCI EM Asia UCITS ETF (0.13%). However, the Lyxor ETF is synthetic and I prefer a physical ETF, such as the iShares one, which holds at least some of the underlying shares in the index.

It’s a reasonably large ETF with £466 million under management.

  1. HSBC MSCI AC Far East ex Japan UCITS ETF

Unlike the iShares ETF above, this fund excludes India but includes Singapore and Hong Kong, which are seen as developed markets. The annual charge is a bit lower at 0.45% and the fund size is around £260 million. In total, there are nine countries included with around 874 countries.

Here’s a breakdown of the largest holdings in terms of companies and countries.

Top five countries

Countries% of ETFChina38.3South Korea16.2Hong Kong14.4Taiwan14.2Singapore4.4

Top five companies

Company% of ETFTencent6.3Alibaba5.6Samsung Electronics5.2Taiwan Semiconductor4.7AIA2.9

HSBC 30/03/19

  1. iShares MSCI Far East Ex-Japan Small Cap UCITS ETF

This ETF is focused on small and medium-sized companies across Asia excluding Japan and India. There are over 1100 stocks in the index and they comprise about 14% of the market cap in each country. The annual charge is quite high at 0.74% but this is a physical fund which inevitably raises costs for the provider.

The ETF is heavily weighted towards Taiwan and South Korea which means you get less exposure to China than in all of the other ETFs in this list (bar one).

Top five countries

Country% of ETFTaiwan26.6South Korea22.7China17.2Hong Kong9.0Singapore8.7

Top five sectors

Sector% of ETFInformation Technology18.6Consumer Discretionary14.8Real Estate14.4Industrials12.8Health8.5

iShares 13/05/19

  1. Vanguard FTSE Developed Asia Pacific ex Japan UCITS ETF

The attraction of this ETF is it gives you exposure to Australian stocks, and no direct exposure to China. It does, however, hold plenty of Hong Kong stocks, so you’re still getting exposure to the Chinese economy. The annual charge is just 0.22% which is lower than most of the funds highlighted in this article.

Top 5 countries

Country% of ETFAustralia39.7South Korea26.6Hong Kong24.1Singapore7.9New Zealand1.7

Top 5 sectors

Sector% of ETFFinancials39.6Technology11.6Industrials10.4Basic Materials8.5Consumer Services8.4

Source: Vanguard 30/04/19

Asia including Japan

5. SPDR S&P Pan Asia Dividend Aristocrats UCITS ETF

There’s aren’t many Asia ETFs that include Japan so without much available choice, we’ve gone for one which invests in income stocks across Asia. In particular, 65 stocks that have increased their dividends for at least seven consecutive years. As well as sizeable exposure to Japan, 21% of the ETF is invested in Australian stocks.

If you’re keen to invest in Japan, you could consider a Japan-only ETF. Read more in Five top Japan ETFs.

Top five countries

Country% of ETFJapan28.8Australia21.0Hong Kong19.6China13.8Taiwan7.6

Top five sectors

Sector% of ETFReal Estate23.7Industrials12.0Information Technology12.0Consumer Discretionary10.2Utilities10.0

The annual charge is 0.55% the fund size is £117 million. The yield is 2.6% which might seem a little low but it’s not bad given that Asian markets tend to be growth-oriented.

So that’s a round-up of some of the most interesting Asian ETFs. Check out Four top emerging market ETFs for more ETF ideas.


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