• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Target These Underperformers in Asian 'Goldilocks' Phase

Key drivers of this 'just right' phase, and how to play it.
By ALEX FREW MCMILLAN
Apr 24, 2019 | 09:38 AM EDT
Stocks quotes in this article: AAXJ, EEMA, TCEHY, BABA, EWX, MXDE, ASEA

It is saying something that elections have been pulled off without a hitch in Thailand and Indonesia, and appear to be progressing in an orderly manner in India. Meanwhile, Britain's parliament remains an unruly rabble unable to make any decision whatsoever over Brexit. House Republicans appear happy to wing President Donald Trump over the Mueller report, then let his presidency flap along. As a Brit by birth, I can only say I'm very glad to be on the Asian side of the earth, right now.

Are Asian emerging markets hitting their "Goldilocks phase"? That's the theory posited by the global markets team at Nomura. They cite seven reasons for adopting a "don't worry, be happy" attitude to Asian equities.

First, the Fed appears to be turning dovish again. This tendency toward lower interest rates encourages investors to take more risk. The specter of a hard Brexit has also temporarily disappeared (until it surely returns) -- another reason for investors to be more confident.

Central banks in Australia, India, Korea and the Philippines also appear set to cut interest rates in the remainder of this year, with Indonesia following suit in 2020.

Nomura cites the positive outcomes of the India and Indonesia elections, too. Indonesian President Jokowi was reelected by an even bigger margin than in the last presidential election (an apparent 9.6% now to 6.3% in 2014). The early signs are that Indian Prime Minister Narendra Modi will also be reappointed to office. Both are business-friendly reformers pushing their economies to modernize, and funding those efforts.

The other factors are China-specific. Beijing is supporting the Chinese economy with easier credit. The latest economic figures have shown this is working, suggesting the Chinese economy has stopped decelerating. Add to that the likelihood of a U.S.-China trade deal in short order, and the Middle Kingdom appears well set.

The iShares MSCI All Country Asia ex-Japan ETF (AAXJ) would be one way to play this period of calm. It's up 14.8% so far this year, with a hefty 36% dose of Chinese stocks, and double-digit exposure to South Korea, Taiwan and Hong Kong.

That means it's running slightly ahead of the MSCI Emerging Markets Asia Index, which is up 14.0% in 2019. The iShares MSCI Emerging Markets Asia ETF (EEMA) tracks that. It is up 14.2% and excludes developed-Asia stocks in places like Hong Kong in favor of a slightly larger allocation to India, Thailand, Malaysia and Indonesia.

But China is the elephant in any Asian-market room. Tencent Holdings (TCEHY) and Alibaba Group Holding (BABA) combine for a 13% claim of the assets in EEMA, and China accounts for 40% of the allocation. At the same time, emerging markets may be coming into their own, this year's sudden fervor for Chinese stocks may be dying down.

The Shanghai and Shenzhen markets tend to lose their way a little bit in May. Sentiment for the Chinese equity markets turned better-than-average at the start of the year and peaked in March, according to separate Nomura research suggesting the "elation" in the mainland Chinese stock market is quietly winding down.

The global rally may in fact have been fueled by the sudden runup in Chinese stocks this year. But that, in turn, was driven by relief as a truce was called in the U.S.-China trade war. Other positive China-specific factors such as the apparent bottoming of the economy and the expansion of credit should now be priced in.

"Chinese equity market sentiment looks to have peaked ahead of that in the U.S. equity market," Nomura quant strategist Masanari Takada concludes.

If the stars are really aligning in favor of emerging markets, it may be time to turn to small-cap stocks. The SPDR S&P Emerging Small Cap ETF (EWX) is lagging global markets, up 11.1% in 2019, since small-cap stocks in emerging markets are generally viewed as the riskiest of risky propositions.

To avoid over-allocation to China, investors can find a very interesting niche play in the Nationwide Maximum Diversification Emerging Markets Core Equity ETF (MXDE) . It is not Asia-specific, although the continent makes up three-quarters of the allocation.

The broad diversification goal of the fund gives it large allocations to India (19%), China (13%), South Korea (12%), Taiwan (12%), Brazil (9%) and Thailand (8%), with a smattering of stocks from Malaysia and the Philippines, as well.

This fund is up only 7.4% in 2019, as investors flew to quality earlier in the year. Should the emerging-markets stars continue to shine, expect this fund to make up lost ground compared with global markets.

The Global X FTSE ASEAN 40 ETF (ASEA) is even more attractive for Asia addicts. Singapore, Thailand, Malaysia and Indonesia each make up more than 15% of that fund. It has shown very similar performance to the Nationwide fund, with the ASEAN product up 7.3% in 2019.

Both niche ETFs should gain ground, the last to rally in the global rebound we have seen this year. These are well worth watching for contrarian investors or those who do believe Goldilocks has come calling to taste the congee in emerging Asia.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from trading individual securities.

TAGS: Economy | Emerging Markets | ETFs | Investing | Markets | Stocks | World | Asia | Emerging Markets (South America, Asia, Middle East) | Global Equity

More from Stocks

The Indexes Cover Up Positive Action, for a Change

James "Rev Shark" DePorre
Jun 6, 2023 4:43 PM EDT

Is a rotation into the lagging names starting to gain traction? Let's see.

Fed's Relevance Appears to Wane

Peter Tchir
Jun 6, 2023 1:00 PM EDT

I may be guilty of wishful thinking, but it looks like the market is finally moving beyond the Federal Reserve.

7 Stocks I'm Trading as Small-Cap Rotation Takes Place

James "Rev Shark" DePorre
Jun 6, 2023 11:53 AM EDT

The gap between big-cap tech names and the rest of the market has to eventually close.

I'm AMPD About This ETF

Mark Abssy
Jun 6, 2023 11:30 AM EDT

The CNIC ICE U.S. Carbon Neutral Power Futures Index exchange-traded fund provides exposure to a blended national electricity price and carbon credits.

Play Unity Software This Way as the Stock Surges on Apple Vision Pro Partnership

Stephen Guilfoyle
Jun 6, 2023 10:40 AM EDT

Clues were out there, but the news certainly took most by surprise.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:19 PM EDT CHRIS VERSACE

    AAP Podcast: This Company Is Not Going 'Solo'

    Listen in as I talk with the very diversified Solo...
  • 01:51 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Adjusting Your Trading Approach to Shifting Market...
  • 06:54 PM EDT CHRIS VERSACE

    AAP Podcast: A Tongue -- and a Market -- Twister: 'Get a Debt Deal Done'

    Listen in as the Action Alerts PLUS Podcast tackle...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login