I was at a lunch presentation for a Tokyo luxury property development today (in my other life, I'm a real-estate reporter) and was surprised to hear that their destination list to drum up foreign interest sees them visiting Hong Kong, Singapore, Taipei and Kuala Lumpur.
Kuala Lumpur and Taipei strike me as outliers. We all know that there's a lot of money stored in Hong Kong, the center of finance for greater China, and Singapore, the money hub for Southeast Asia.
But the inclusion of those "minor" Asian cities is a sign of just how much hidden wealth there is in Asia. Grosvenor's broad scope reminded me that investors who are interested in emerging markets should pay attention to smaller Asian economies as well.
The project is the Westminster Nanpeidai, a 52-apartment revival of a modernist masterpiece in central Tokyo by Grosvenor. Grovesnor, which is privately held, is the company that runs the property holdings of the Duke of Westminster, who owns much of the ritziest parts of London.
Grosvenor targets Hong Kong, Shanghai and Tokyo for investment. In terms of buyers, though, they have found the breakdown more diverse. China is a fascinating story at the moment, particularly with its beaten-down stock markets. I get a bit blinkered, being based in Hong Kong, and tend to obsess on that story. But unlike everybody else, Grosvenor isn't chasing Chinese buyers at all. It does, however, see money in Malaysia.
Malaysia has been a bit of a sleeper. The Malaysian ringgit has been the second-best performing Asian currency this year, behind the Japanese yen. Investors in emerging markets get blasted by currency change, and would do better to buy currency-hedged exchange traded funds to gain exposure.
But direct Malaysian holdings would be up 6.5% just by being in the ringgit (let's forget that it fell almost 19% last year, shall we then?!). The yen is up 10.5% against the dollar year to date, so direct Japanese holdings have done even better.
Malaysia's gross domestic product figures also just came out for the first quarter, with a gain of 4.2%. That was down from last quarter's 4.6% but still better than expected, with Commerzbank predicting 4.4% for the whole year -- which in this current environment ain't too shabby. Its central bank has a new market-friendly chief, Muhammad Ibrahim, who replaced Zeti Akhtar Aziz, who held the post for 16 years. It could bode well.
The iShares MSCI Malaysia ETF (EWM) offers direct exposure to the Malaysian market. It's a small fund, with only $327 million in assets. But it's the only pure play for U.S. investors. It is just coming off a seven-year low set in September and retested in January.
Investors looking to play Indonesia are spoiled for choice -- there are all of three ETFs covering the country! Take your pick, in order of size, from the iShares MSCI Indonesia ETF (EIDO), the VanEck Vectors Indonesia ETF (IDX) or even the VanEck Vectors Indonesia Small-Cap ETF (IDXJ), itself a small-cap with only $5.5 million in assets.
The rupiah has taken an absolute hammering and is at levels last seen during the Asian financial crisis. So those ETFs are all near six-year or even historic lows. The cheap currency was great news for my family's Christmas trip to Bali, but it's hurting any company with foreign currency debt. Of course, that's what precipitated the Asian financial crisis, but for the most part that excess was removed back then.
They say follow the money, and in Malaysia and Indonesia that means oil. Indonesia is the only Asian member of OPEC, reactivating its membership in 2016 after a seven-year lull. Malaysia isn't in OPEC, but it gets 29% of its government revenues from oil and gas. It is also the No. 1 exporter of palm oil, nothing like the black stuff but used for cooking in the developing world and industry in the rest.
I would hold off on any Malaysian or Indonesian exchange traded funds until we see a sign of a sustained turnaround in commodities. The same can be said of Indonesian ETFs. But when oil and other commodities show a significant uptick, and if emerging markets rebound at the same time, Malaysian and Indonesian ETFs would be a double play.