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Not So Far East: Investing Opportunities in Southeast Asia ETFs


The sub-region is on track for sustained growth, so what are the best levels for entry?

In this article, my firm will look at traditional and non-traditional economic indicators that support the thesis that economic development is happening and furthermore, that money is flowing into the equity markets of Southeast Asia. We will also transition our economic analysis to that of the region's equity prospects by analyzing pricing charts of individual country ETFs. (For more on the Southeast Asian economy, be sure to click here and here.)

Wine Consumption per Capita

I have yet to see a statistical research paper that shows economic development is a major determinant in increased wine consumption. However, I have come across some articles showing that wine consumption decreases in times of economic downturns. Wine is categorized as a consumer discretionary and thus it would make sense that individual and families' economic standing affects their ability to consume wine. Additional disposable income or the perception of having additional disposable income, in theory, should increase consumer discretionary purchases. So I thought it would be interesting to look at wine consumption per capita across the top five countries versus some Southeast Asian countries.

Sources: Wine Institute – Consumption by Volume and Wine Institute – Consumption by Country

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You can see how the total consumption of wine per capita of these nations pale in comparison to the countries traditionally known to be big consumers of wine. However, the rate of growth in per capita consumption -- especially for Hong Kong, Malaysia, and the Philippines -- support the thesis that there is an emerging consumer class eager to put disposable income to work.

Portfolio Equity Inflows

As much as I have written about socioeconomic factors and how they support the thesis that this sub-region is on a path for sustained growth, unless there is concrete evidence that institutions are also pouring money into the area, it doesn't do much for retail investors and traders. Thus, this last chart is a vital tool that we must keep track of. As long as the general trajectory is up, it bodes well for these countries' bourses.

But investing in this region comes with a bit of caution: As with most markets considered emerging or frontier, these countries are considered to be at the riskier end of the spectrum so investors must monitor these investments with care. For example, investors should note that global events that necessitate a risk off approach may lead to a liquidation of these riskier type of assets.

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Author has positions in EWH, EPHE, EWS, EWT, EWM, THD, and IF.
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